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Suppose there are two independent economic factors, M, and M. The risk.free rate is 5%, and all stocks have independent firm specific components with a

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Suppose there are two independent economic factors, M, and M. The risk.free rate is 5%, and all stocks have independent firm specific components with a standard deviation of 48% Portfolios A and B are both well diversified Portfolio Beta on M Beta on N2 Expected Return (3) What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected retum-beta relationship (P) - 5 .00 % + 18.02 AP1 1 0.19 P2

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