Suppose there are two independent economic factors, $M_1$ and $M_2.$ The risk$-$free rate is $4\%,$ and all stocks have independent

firm$-$specific components with a standard deviation of $41\%.$ Portfolios A and $B$ are both well diversified.

Required:

What is the expected return$-$beta relationship in this economy? $($Do not round intermediate calculations. Round your

answers to $2$ decimal places.$)$

Expected return$-$beta relationship $E(r_P)=$

$\%+$

${}_{P1}+$

${}_{P2}$