Assume that stock market returns are correctly specified by a two-factor model. Two well-diversified funds, X and Y, have the characteristics shown in the following table:

Fund	Expected Return	Factor 1 Beta	Factor 2 Beta
X	9.0%	1.00	0.50
Y	18.5%	2.00	1.90

The risk-free rate is 4%. Calculate the risk premia for the two factors. Show your calculations.

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Use the information below to answer You own 100 shares of each of the following two stocks:

Assume that the single index model holds and that the standard deviation of the market portfolio is 22%.

What is the Beta of this portfolio? Show your calculations

What is the residual variance of the returns of the portfolio? Show your calculations.