Problem 2 Consider an APT model with two independent economic factors, i and F2 with standard deviations equal to +15% and +15% respectively. In this economy, the risk-free rate is 6%. There are two well-diversified portfolios, A and B. Portfolio A has a beta on F1 of 1.5, a beta on F2 of 2 and an expected return of 31%. Portfolio B has a beta on 1 of 2.2, a beta on 2 of -0.2 and an expected return of 27%. . a) What is the expected return-beta relationship in this economy? b) What is the standard deviation of portfolio A? c) Assume that in this economy the returns of all stocks have also an in- dependent idiosyncratic component with standard deviation of 45%. Then, consider stock C with a beta on F1 of 2, and a beta on 72 of -2. What is the standard deviation of stock C? Problem 2 Consider an APT model with two independent economic factors, i and F2 with standard deviations equal to +15% and +15% respectively. In this economy, the risk-free rate is 6%. There are two well-diversified portfolios, A and B. Portfolio A has a beta on F1 of 1.5, a beta on F2 of 2 and an expected return of 31%. Portfolio B has a beta on 1 of 2.2, a beta on 2 of -0.2 and an expected return of 27%. . a) What is the expected return-beta relationship in this economy? b) What is the standard deviation of portfolio A? c) Assume that in this economy the returns of all stocks have also an in- dependent idiosyncratic component with standard deviation of 45%. Then, consider stock C with a beta on F1 of 2, and a beta on 72 of -2. What is the standard deviation of stock C