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Suppose that there are two independent economic factors, X and Y. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 45%. The following are well-diversified portfolios:

Portfolio A: Expected return for this portfolio is 31% Beta on X is 1.5 Beta on Y is 2.0

Portfolio B: Expected return for this portfolio is 27%

Beta on X is 2.2 Beta on Y is -0.2

Question: what is the expected return-beta relationship in this economy?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92095326

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