For this question ask for the expected return -beta relationship . Must I repeat the E(R)...

For this question ask for the expected return -beta relationship .

Must I repeat the E(R) formula for Beta F1 & F2 and then compare the answers?

pg. 139 of Investments 11th edition thanks!

There's the question:

4. Suppose the there are two independent economic factors F1 and F2. The risk free rate is 6% and all the stocks have independent firm specific components with a standard deviation of 45%. Portfolios A and B are both well diversified with the properties:

Portfolio

A 1.5 (Beta F1) 2.0 (Beta F2) 31% (Expected Return)

B 2.2 (Beta F1) -0.2 (Beta F2) 27% (Expected Return)

What is the expected return beta-relationship in this economy?

thanks again.

Expert Solution

jeff jeffy answered 7 months ago

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