Question

Suppose you are working with two factor portfolios. Portfolio 1 and Portfolio 2. The portfolios have expected returns of 15% and 6%, respectively. Based on this information, what would be the expected return on well-diversified portfolio A TA has a beta of 1 on the first factor and 0 on the second factor? The risk-free rate is 3%. ? 3.00% O 12.096 ? 15.0% ? 6.00%

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Answer #1

Beta of factor 1 = 1

Beta of factor 2 = 0

Risk free rate = 3%

E(R) = 3% + 1 * (15% - 3%) + 0 * (6% - 3%)

E(R) = 3% + 12%

E(R) = 15%


answered by: ANURANJAN SARSAM
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