Question
Suppose there are two independent economic factors, M 1 and M 2 . The risk-free rate is 5%, and all stocks have independent firm-specific components
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 44%. Portfolios A and B are both well diversified.
| Portfolio | Beta on M1 | Beta on M2 | Expected Return (%) |
| A | 1.5 | 1.9 | 34 |
| B | 1.8 | -0.6 | 12 |
What is the expected returnbeta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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Handbook Of The Economics Of Finance Volume 2A
Authors: George M. Constantinides, Milton Harris, Rene M. Stulz
1st Edition
0444535942, 978-0444535948
