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 44%. Portfolios A and B are both well-diversified with the following properties: Portfolio B Beta on F1 2.0 2.9 Beta on F2 2.3 -0.23 Expected Return 34% 29% What is the expected return-beta relationship in this economy? Calculate the risk-free rate, rf, and the factor risk premiums, RP, and RP2, to complete the equation below. (Do not round intermediate calculations. Round your answers to two decimal places.) Erp) = rf+(BP1 * RP1) + (BP2 * RP2) rf % RP1 RP2 %