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Business, 31.07.2020 05:01 xavierfox1721

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 relationship in this economy? Calculate the risk-free rate, rf, and the factor risk premiums, RP1 and RP2 to complete the equation below. (Do not round intermediate calculations.) E(rP) = rf + (βP1 × RP1) + (βP2 × RP2)

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Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%, and al...
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