Suppose stock returns can be explained by a two-factor model. The firm-specific risks for all stocks are independent. The following table shows the information for two diversified portfolios: ẞ1 ẞ2 E(R) Portfolio .79 1.09 18% A -.19 16 Portfolio B 1.39 If the risk-free rate is 4 percent, what are the risk premiums for each factor in this model? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Factor F1 Factor F2 % %

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Suppose stock returns can be explained by a two-factor model. The firm-specific risks for
all stocks are independent. The following table shows the information for two diversified
portfolios:
ẞ1
ẞ2
E(R)
Portfolio
.79
1.09
18%
A
-.19
16
Portfolio B 1.39
If the risk-free rate is 4 percent, what are the risk premiums for each factor in this model?
(Do not round intermediate calculations and enter your answers as a percent rounded
to 2 decimal places, e.g., 32.16.)
Factor F1
Factor F2
%
%
Transcribed Image Text:Suppose stock returns can be explained by a two-factor model. The firm-specific risks for all stocks are independent. The following table shows the information for two diversified portfolios: ẞ1 ẞ2 E(R) Portfolio .79 1.09 18% A -.19 16 Portfolio B 1.39 If the risk-free rate is 4 percent, what are the risk premiums for each factor in this model? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Factor F1 Factor F2 % %
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