Problem $7-33($Algo$)$

Suppose there are two independent economic factors, $M_1$ and $M_2.$ The risk$-$free rate is $4\%,$ and all stocks have independent firmspecific components with a standard deviation of $57\%.$ Portfollos A and $B$ are both well diversified.

$\backslash$table$[[$Portfolio$,$Beta on $M_1,$Beta on $M_2,$Expected Return $(\%)],[A,1\mathrm{.}7,2\mathrm{.}3,36],[B,2\mathrm{.}2,-0\mathrm{.}8,9]]$

Required:

What is the expected return$-$beta relationship in this economy? $($Do not round Intermedlate calculatlons. Round your answers to $2$ decimal places.$)$

Expected return$-$beta relationship $E(r_P)=\%+$

$9\mathrm{.}68$

${}_{P1}+$