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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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