Question
Suppose there are two independent economic factors, M 1 and M 2 . The risk-free rate is 6%, and all stocks have independent firm-specific components
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 42%. Portfolios A and B are both well diversified.
| Portfolio | Beta on M1 | Beta on M2 | Expected Return (%) |
| A | 1.5 | 2.4 | 32 |
| B | 2.3 | -0.5 | 10 |
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| |||
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
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Finance Theory And Practice
Authors: Anne Marie Ward
2nd Edition
1907214259, 978-1907214257
