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 Beta on F1 Expected Return Portfolio A B 1.5 2.2 Beta on F2 2.0 -0.2 31% 27% What is the expected return-beta relationship in this economy?
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 Beta on F1 Expected Return Portfolio A B 1.5 2.2 Beta on F2 2.0 -0.2 31% 27% What is the expected return-beta relationship in this economy?
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
Problem 1PS
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A 266.
![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
Expected Return
Portfolio
A
B
Beta on F1
1.5
2.2
Beta on F2
2.0
-0.2
31%
27%
What is the expected return-beta relationship in this economy?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbfc20079-94e8-4cd0-9641-6eed6270f2be%2Fcebe08d5-1090-4ad1-8036-28f14017ad6e%2Fhwv3327_processed.png&w=3840&q=75)
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
45%. Portfolios A and B are both well-diversified with the following properties
Expected Return
Portfolio
A
B
Beta on F1
1.5
2.2
Beta on F2
2.0
-0.2
31%
27%
What is the expected return-beta relationship in this economy?
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