Question
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
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 49%. Portfolios A and B are both well diversified.
| Portfolio | Beta on M1 | Beta on M2 | Expected Return (%) |
| A | 1.6 | 2.4 | 39 |
| B | 2.3 | -0.7 | 9 |
|
| |||
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)
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Money, Banking And Financial Markets
Authors: Stephen G. Cecchetti, Kermit L. Schoenholtz
3rd Global Edition
1259071197, 9781259071195
