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Suppose that there are two independent economic factors, F 1 and F 2 . The risk-free rate is 6%, and all stocks have independent firm-specific

Suppose that there are two independent economic factors, F₁ and F₂. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 55%. The following are well-diversified portfolios:

Portfolio	Beta on F₁	Beta on F₂	Expected Return
A	1.7	2.2	33%
B	2.7

What is the expected return-beta relationship?

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