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Suppose that there are two independent economic factors, and F. The risk-free rate is 4%...

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Suppose that there are two independent economic factors, and F. The risk-free rate is 4% and all stocks have independent firm specific components with a standard deviation of 41%. Portfolios A and B are both well-diversified with the following properties: Expected Portfolio Beta on F1 1.7 2.6 Beta on F2 2.1 -0.21 26% What is the expected return-beta relationship in this economy? Calculate the risk-free rate, and the factor risk premiums, RP, and RP2, to complete the equation below. (Do not round intermediate calculations, Round your answers to two decimal places.) Erp) = rf+(BPRP) +(BP2 * RP)

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