Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 5%,...
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Finance
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 52%. Portfolios A and B are both well diversified.
Portfolio
Beta on M1
Beta on M2
Expected Return (%)
A
1.6
2.5
31
B
2.4
-0.7
12
What is the expected returnbeta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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