Question: suppose the stock market has a 2factor structure the riskfree...
Question details
Suppose the stock market has a 2-factor structure. The risk-free rate is 3% and the factor-betas and expected returns on two well-diversified portfolios A and B are given in the table below. What is the expected return on a portfolio with factor 1 beta of 0.8 and factor 2 beta of 1.2?
| Portfolio | Expected return | Factor 1 beta | Factor 2 beta |
| A | 8.13% | 0.7 | 1.1 |
| B | 10.90% | 0.8 | 2 |
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