Consider a market that is governed by a factor structure with two factors. There are two widely diversified portfolios L and M. Factor loadings are b L1 = 4, b L2 = 1, b M1 = 2, b M2 = 3. The two factors have standard deviations 1 = 2%, 2 = 8%. The correlation between the factors is 0.25. What is the correlation Corr[r L , r M ] between the two assets?

(A) 0.425

(B) 0.575

(C) 0.875

(D) 0.978

(E) None of the above.