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Suppose that there are two independent economic factors, F 1 and F 2 . The risk-free rate is 5%, and all stocks have independent firm-specific

Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 54%. The following are well-diversified portfolios:

Portfolio Beta on F1 Beta on F2 Expected Return
A 1.6 2.0 32%
B 2.6 0.20 29%

What is the expected returnbeta relationship in this economy? (Do not round intermediate calculations. Round your answers to two decimal places. Omit the "%" sign in your response.)

E(rP) = % + (P1 %) + (P2 %)

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