Question: question A portfolio manager wants to create a simple portfolio from only two stocks, A and B. The returns for stocks A and B are

question

A portfolio manager wants to create a simple portfolio from only two stocks, A and B. The returns for stocks A and B are given by the following equations:

RA = 0.09 1FINF + 1FGDP + A

and

RB = 0.12 + 2FINF + 4FGDP + B

The manager forms a portfolio with market value weights of 40% in Stock A and 60% in Stock B. What is the sensitivity to the portfolio of a 1% rise in inflation?

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