Question
Suppose there are two independent economic factors,M 1 andM 2 . The risk-free rate is 5%, and all stocks have independent firm-specific components with a
Suppose there are two independent economic factors,M1andM2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 56%. PortfoliosAandBare both well diversified.
| Portfolio | Beta onM1 | Beta onM2 | Expected Return (%) |
| A | 1.7 | 2.2 | 35 |
| B | 2.1 | -0.8 | 8 |
What is the expected returnbeta relationship in this economy?(Do not round intermediate calculations. Round your answers to 2 decimal places.)
Expected returnbeta relationshipE(rP)=_______%+______P1+______P2
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Advanced Financial Accounting
Authors: Richard Lewis, David Pendrill
7th Edition
0273658492, 978-0273658498
