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7. Suppose that there are two independent economic factors, Fi and F2. The risk-free rate is 6%, and all stocks have independent firm-specific components with

7. Suppose that there are two independent economic factors, Fi and F2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 45%. The following are well-diversified portfolios: Portfolio Beta on F1 Beta on F2 Expected Return A 1.5 2.0 -0.2 31% 27% B 2.2 What is the expected return-beta relationship in this economy

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