What is the expected return-beta sml equilibrium

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Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 45%. Portfolios A and B are both well-diversified with the following properties:

Portfolio

Beta on F1

Beta on F2

Expected Return

A

1.5

  2.0

31%

B

2.2

-0.2

27%

What is the expected return-beta SML equilibrium relationship in this economy?

Reference no: EM133081271

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