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Suppose there are two independent economic factors, My and M2. The risk-free rate is 6%, and all stocks have independent firm- specific components with a

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Suppose there are two independent economic factors, My and M2. The risk-free rate is 6%, and all stocks have independent firm- specific components with a standard deviation of 46%. Portfolios A and B are both well diversified. Portfolio A Beta on Mi 1.5 2.0 Beta on M2 2.1 -0.6 Expected Return (%) 36 14 B 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(rP) = % + BP1 + BP2

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