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Suppose that there are two independent economic factors, F, and F2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 46%. Portfolios A and 8 are both well-diversified with the following properties: Expected Portfolio      Beta on F1     Beta on F2       Es Return A                   2.1                   2.4                    35% B                   3.0                  -0.24                  30% 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. Round your answers to two decimal places.) Blrp) = r¢ + (Ber * RP1) + (Bp2 * RP2)   Please see attached image for more details.

Suppose that there are two independent economic factors, F, and F2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 46%. Portfolios A and 8 are both well-diversified with the following properties: Expected Portfolio      Beta on F1     Beta on F2       Es Return A                   2.1                   2.4                    35% B                   3.0                  -0.24                  30% 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. Round your answers to two decimal places.) Blrp) = r¢ + (Ber * RP1) + (Bp2 * RP2)   Please see attached image for more details.

Essentials Of Investments
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
Section: Chapter Questions
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Suppose that there are two independent economic factors, F, and F2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 46%. Portfolios A and 8 are both well-diversified with the following properties:

Expected

Portfolio      Beta on F1     Beta on F2       Es Return
A                   2.1                   2.4                    35%
B                   3.0                  -0.24                  30%

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. Round your answers to two decimal places.)

Blrp) = r¢ + (Ber * RP1) + (Bp2 * RP2)

 

Please see attached image for more details.
 

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 46%. Portfolios A and B are both well-diversified with the following properties: Portfolio Beta on F₁ A B 2.1 3.0 Beta on F2 2.4 -0.24 Expected Return 35% 30% What is the expected return-beta relationship in this economy? Calculate the risk-free rate, r, and the factor risk premiums, RP₁ and RP2, to complete the equation below. (Do not round intermediate calculations. Round your answers to two decimal places.) E(rp) rf (BP1 x RP1) + (PP2 RP2)
Transcribed Image Text: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 46%. Portfolios A and B are both well-diversified with the following properties: Portfolio Beta on F₁ A B 2.1 3.0 Beta on F2 2.4 -0.24 Expected Return 35% 30% What is the expected return-beta relationship in this economy? Calculate the risk-free rate, r, and the factor risk premiums, RP₁ and RP2, to complete the equation below. (Do not round intermediate calculations. Round your answers to two decimal places.) E(rp) rf (BP1 x RP1) + (PP2 RP2)
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