Question: Consider a two factor model. The two independent economic factors are F1 and F2. The risk-free rate of return is 6%. The following information is

Consider a two factor model. The two independent economic factors are F1 and F2. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios:

Portfolio A: of F1 is 1 : of F2 is 2 and Expected Return is 19%

Portfolio B : of F1 is 2: of F2 is 0 and expected return is 12%

Assuming no arbitrage opportunities exist (that is all s are zero), what are the risk premiums on the factors F1 and F2?

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