D E F G H 1 > 1 Question 16 2 3 Suppose that there are two independent economic factors, F, and Fz. 4 The risk-free rate is 3.3%, and all stocks have independent firm-specific components with a standard deviation of 15%. 5 Portfolios A and B are both well-diversified with the following properties: 6 7 Portfolio B for F B for F2 Expected return 8 A 1.2 -0.3 20.1% 9 B 0.8 0.6 20.9% 10 11 What is the risk premium of the second factor, i.e., E[F]? 12 13 A 4% 14 B 8% 15 C 12% 16 D 16% 17