Problem 10-4 Suppose that there are two independent economic factors, Fi and F2. The risk-free rate is 5%, and all stocks have independent firm- specific components with a standard deviation of 35%. Portfolios A and B are both well-diversified with the following properties: Portfolio A B Beta on F1 1.1 2.0 Beta on F2 1.5 -0.15 Expected Return 25% 22% What is the expected return-beta relationship in this economy? Calculate the risk-free rate, rf, and the factor risk premiums, RP1 and RP2, to complete the equation below. (Do not round intermediate calculations. Round your answers to two decimal places.) Elrp) = rf+(BP1 * RP1) + ( P2 * RP2) rf % RP1 RP2 %