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 59%. Portfolios A and B are both well diversified.
| Portfolio | Beta on M1 | Beta on M2 | Expected Return (%) |
| A | 1.7 | 2.5 | 38 |
| B | 2.4 | -0.9 | 11 |
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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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Global Corporate Finance A Focused Approach
Authors: Suk Hi Kim, Kenneth A Kim
2nd Edition
9814618004, 9789814618007
