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Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 7%, and all stock- specific components with a standard deviation of

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Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 7%, and all stock- specific components with a standard deviation of 55%. Portfolios A and B are both well diversified. Portfolio B Beta on Mi 1.7 2.0 Beta on M2 2.1 -0.8 Expected Return (8) 34 15 What is the expected return-beta relationship in this economy? (Do not round intermediate calculation decimal places.) 7.00 % + Expected return-beta relationship E(TP) = BP2 |BP1+

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