Question: E(ra) = rf + Ba1 x x1 + Ba2 x x2 12.4% = 3% + 0.5 x x1 + 0.9 x x2 E(rb) = rf

E(ra) = rf + Ba1 x x1 + Ba2 x x2

12.4% = 3% + 0.5 x x1 + 0.9 x x2

E(rb) = rf + Bb1 x x1 + Bb2 x x2

8% = 3% + 1 x x1 + -0.5 x x2

Not sure how to solve to get x1 and x2

3". Given a two-factor economy. Asset A and B are well-diversied portfolios. The risk- free rate is 3%. The standard deviations of the excess return of factor portfolio 1 and 2 are 20% and 13% res nectlvel . Asset Beta 1 Burn 2 Forced-sled Return 0.9 12.40% -0.5 8.00% 1) Assume the market is arbitrage free. What are the risk premiums of factor portfolio 1 and 2

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