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Assume that there are four stocks whose returns and sensitivities are as follows: Stock Factor risk premium Productivity Sensitivity Inflation Sensitivity 1 0.2 2.0 2

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Assume that there are four stocks whose returns and sensitivities are as follows: Stock Factor risk premium Productivity Sensitivity Inflation Sensitivity 1 0.2 2.0 2 0.643 3.0 0.2 3 -1.157 1.0 1.0 4 -0.486 2.0 2.0 (a) If risk-free rate is 3% what is the expected return of each stock? (b) Given a proportion of 35%,30%,20%, and 15% for stocks 1,2,3, and 4, respectively, what is the portfolio expected return

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