b) Suppose that the risky premium on the market portfolio is estimated at 8% with a standard deviation of 22%. What is the risk premium of a portfolio invested 25% in CEMENCO and 75% in Monrovia Breweries, if they have Betas of 1.1 and 1.25 respectively?

c) Suppose the two factor portfolios, here called portfolio 1 and 2, have Expected Returns E (r₁) = 10% and E(r₂) = 12%. Suppose further that the risk-free-rate is 4%. The risk premium on the first factor portfolio is therefore 6%, while that on the second factor portfolio is 8%. Now consider an arbitrary well-diversified Portfolio (P), with Beta on the first factor, BP₁ =.2 and the second factor BP₂ = 1.4. Find the fair rate of return on the security.

d) What do most empirical studies suggest about the stock market?