Solve the given problem
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 8%, and all stocks have independent firm-specific components with a standard deviation of 38%. The following are well-diversified portfolios:
| Portfolio |
Beta on F1 |
Beta on F2 |
Expected Return |
| A |
1.4 |
1.8 |
28% |
| B |
2.3 |
-0.18 |
25% |
|
What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answer to the nearest whole number. Omit the "%" sign in your response.)
|
E(rP) = % + (ßP1 × %) + (ßP2 × %)
|