What is expected return–beta relationship in this economy

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Reference no: EM13731488

Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 9%, and all stocks have independent firm-specific components with a standard deviation of 49%. The following are well-diversified portfolios:

Portfolio Beta on F1 Beta on F2 Expected Return

A 2.4 2.6 27%

B 3.0 –0.26 22%

What is the expected return–beta relationship in this economy?

E(rP) = 9 % + (?P1 × ? %) + (?P2 × ? %)

Reference no: EM13731488

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