Question: Problem 3 Part A.2 (Exercise n. 28 in the book) Suppose there are two independent economic factors, M and M2, The risk free rate is

Problem 3 Part A.2 (Exercise n. 28 in the book) Suppose

Problem 3 Part A.2 (Exercise n. 28 in the book) Suppose there are two independent economic factors, M and M2, The risk free rate is 7% and all shares have independent firm-specific components with a standard deviation of 50%. Portfolios A and B are both well diversified Portfolio Beta on w Beta on w2 Expected return 2.1 0.5 1.8 A0 10 . What is the expected return-beta relationship in this economy

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