There are two independent economic factors, M1 and M2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 25%. Portfolios A and B are well diversified. Given the data below, which equation provides the correct pricing model? Portfolio Beta on M1 Beta on M2 E[rp] 1.5 1.75 35% 1.0 0.65 20% A B Erp) = 5 + 1.12Bp₁ + 11.86Bp2 E(rp) = 5 +4.96Bp₁ + 13.26Bp2 O E(rp) = 5 +3.23Bp₁ + 8.46Bp2 O E(rp) = 5 +8.71Bp₁ + 9.68Bp2

There are two independent economic factors, M1 and M2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 25%. Portfolios A and B are well diversified. Given the data below, which equation provides the correct pricing model? Portfolio Beta on M1 Beta on M2 E[rp] 1.5 1.75 35% 1.0 0.65 20% A B Erp) = 5 + 1.12Bp₁ + 11.86Bp2 E(rp) = 5 +4.96Bp₁ + 13.26Bp2 O E(rp) = 5 +3.23Bp₁ + 8.46Bp2 O E(rp) = 5 +8.71Bp₁ + 9.68Bp2

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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