Question
In: Finance
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 3%,...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 3%, and all stocks have independent firm-specific components with a standard deviation of 52%. Portfolios A and B are both well-diversified with the following properties:
| Portfolio | Beta on F1 | Beta on F2 | Expected Return | ||||||||
| A | 1.4 | 1.8 | 30% | ||||||||
| B | 2.4 | –0.18 | 27% | ||||||||
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.)
E(rP) = rf +
(βP1 × RP1)
+ (βP2 ×
RP2)
Solutions
jeff jeffy answered 1 day agoRelated Solutions
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Suppose that there are two independent economic factors, F1 and
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firm-specific components with a standard deviation of 47%.
Portfolios A and B are both well-diversified with the following
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Suppose that there are two independent economic factors,
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rate is 9%, and all stocks have independent firm-specific
components with a standard deviation of 49%. Portfolios A
and B are both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected Return
A
2.4
2.6
27
%
B
3.0
–0.26
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%
What is the expected return-beta relationship in this economy?
Calculate the risk-free rate, rf, and the
factor risk premiums, RP1 and...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%,...
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 36%. Portfolios A
and B are both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected Return
A
1.2
1.6
26
%
B
2.1
–0.16
23
%
What is the expected return-beta relationship in this economy?
Calculate the risk-free rate, rf, and the
factor risk premiums, RP1 and...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%,...
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 36%. Portfolios A
and B are both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected Return
A
1.2
1.6
26
%
B
2.1
–0.16
23
%
What is the expected return-beta relationship in this economy?
Calculate the risk-free rate, rf, and the
factor risk premiums, RP1 and...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%,...
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 Bare both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected 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...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 5%,...
Suppose that there are two independent economic factors,
F1 and F2. The risk-free
rate is 5%, and all stocks have independent firm-specific
components with a standard deviation of 35%. Portfolios A
and B are both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected Return
A
1.1
1.5
25
%
B
2.0
–0.15
22
%
What is the expected return-beta relationship in this economy?
Calculate the risk-free rate, rf, and the
factor risk premiums, RP1 and...
Problem 10-4 Suppose that there are two independent economic factors, F1 and F2. The risk-free rate...
Problem 10-4
Suppose that there are two independent economic factors,
F1 and F2. The risk-free
rate is 5%, and all stocks have independent firm-specific
components with a standard deviation of 35%. Portfolios A
and B are both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected Return
A
1.1
1.5
25
%
B
2.0
–0.15
22
%
What is the expected return-beta relationship in this economy?
Calculate the risk-free rate, rf, and the
factor risk premiums,...
uppose that there are two independent economic factors, F1 and F2. The risk-free rate is 7%,...
uppose that there are two independent economic factors, F1 and
F2. The risk-free rate is 7%, and all stocks have independent
firm-specific components with a standard deviation of 37%.
Portfolios A and B are both well-diversified with the following
properties: Portfolio Beta on F1 Beta on F2 Expected Return A 1.3
1.7 27 % B 2.2 –0.17 24 % What is the expected return-beta
relationship in this economy? Calculate the risk-free rate, rf, and
the factor risk premiums, RP1 and...
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 5%, and...
Suppose 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 56%. Portfolios A
and B are both well diversified.
Portfolio
Beta on
M1
Beta on
M2
Expected
Return (%)
A
1.7
2.2
35
B
2.1
-0.8
8
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(rP) =...
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Suppose there are two independent economic factors,
M1 and M2. The risk-free
rate is 4%, and all stocks have independent firm-specific
components with a standard deviation of 49%. Portfolios A
and B are both well diversified.
Portfolio
Beta on M1
Beta on M2
Expected Return (%)
A
1.6
2.4
39
B
2.3
-0.7
9
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(rP) =...
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