Question
Suppose there are two independent economic factors, M 1 and M 2 . The risk-free rate is 7%, and all stocks have independent firm-specific components
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 7%, and all stocks have independent firm-specific components with a standard deviation of 50%. Portfolios A and B are both well diversified.
| Portfolio | Beta on M1 | Beta on M2 | Expected Return (%) |
|---|---|---|---|
| A | 1.8 | 2.1 | 40 |
| B | 2.0 | 0.5 | 10 |
Required:
What is the expected returnbeta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Expected returnbeta relationship E(rP) =% +P1 +P2
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
The Routledge Handbook Of Responsible Investment
Authors: Tessa Hebb, James Hawley, Andreas Hoepner, Agnes Neher, David Wood
1st Edition
0415624517, 978-0415624510
