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Suppose the stock market has a 2-factor structure. The risk-free rate is 3% and the factor-betas and expected returns on two well-diversified portfolios A and

Suppose the stock market has a 2-factor structure. The risk-free rate is 3% and the factor-betas and expected returns on two well-diversified portfolios A and B are given in the table below. What is the expected return on a portfolio with factor 1 beta of 0.8 and factor 2 beta of 1.2?

Portfolio Expected return Factor 1 beta Factor 2 beta
A 8.13% 0.7 1.1
B 10.90% 0.8 2

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