Question

beta p1 is no either 4.44 or 4.43. can i get the right answer pls

Suppose there are two independent economic factors, M, and My. The risk-free rate is 5%, and all stocks have independent firm- specific components with a standard deviation of 48%. Portfolios A and B are both well diversified. Portfolio Beta on M Beta on N2 Expected Return (8) 1.6 2.2 -0.6 What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected retum beta relationship (P) - 5.00% 4.44 DPI 1 1.2002

Answer 1

Here to find risk premium, we have to solve below equations

38 = 5 + 1.6rp₁ + 2.3rp2---(1)

8 =  5 + 2.2rp₁ - 0.6rp2--(2)

These 2 eqns we need to solve to get

rp1 = 4.435216

rp2 = 11.2625

I have used excel to calculate value, hopefully, they should be correct and matches with your answer also.