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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

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 30%. The following are well-diversified portfolios:

Portfolio	Beta on F1	Beta on F2	Expected Return
A	1.1	1.5	15%
B	0.9	0.5	13%

What is the expected return-beta relationship in this economy?

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