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Suppose there are two independent economic factors, M, and M2. The risk-free rate is 7%, and all stocks have independent firm-specific components with a standard

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Suppose there are two independent economic factors, M, 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 A B Beta on Mi 1.7 2.4 Beta on M2 2.5 -0.9 Expected Return (%) 38 11 What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(TP) = % + BP1 + : BP2

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