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 55%. Portfolios A and B are both well diversified.
| Portfolio | Beta on M1 | Beta on M2 | Expected Return (%) |
|---|---|---|---|
| A | 1.7 | 2.1 | 34 |
| B | 2.0 | -0.8 | 15 |
What is the expected returnbeta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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
Legal Handbook For Financial Planning In 2019
Authors: Allen Buckley
1st Edition
1091578826, 978-1091578821
