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 47%. Portfolios A and B are both well diversified.

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 47%. Portfolios A and B are both well diversified. Portfolio Beta on M2 Expected Return (%) Beta on M 1.6 2.1 2.2 37 B -0.6 15 What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) cimal places.y my? (Do not ; Expected return-beta relationship E(rp) = % + Bpi + Bp2