Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 6%, and all stocks have independentfirm-specific components with a standard deviation of 54%. Portfolios A and B are both well diversified.Portfolio Beta on M₁1.71.98Beta on M₂2.0-0.8Expected Return (%)3314Required:What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round youranswers to 2 decimal places.)Expected return-beta relationship (fp)6.00 % +7.28 Bp1+7.31 Bp2

According to CAPMExpected return =

Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 54% Portfolios A and B are both well diversified. Portfolio Beta on M₁ 1.7 1.9 Beta on M₂ 2.0 -0.8 Expected Return (%) 33 14 Required: What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(fp) = 6.00 % + 7.28 Pp₁+ 7.31 PP2

Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 54% Portfolios A and B are both well diversified. Portfolio Beta on M₁ 1.7 1.9 Beta on M₂ 2.0 -0.8 Expected Return (%) 33 14 Required: What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(fp) = 6.00 % + 7.28 Pp₁+ 7.31 PP2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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