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Consider a Well-Diversified Portfolio, A, in a Two-Factor Economy

Question 16

Multiple Choice

Consider a well-diversified portfolio, A, in a two-factor economy.The risk-free rate is 5%, the risk premium on the first-factor portfolio is 4%, and the risk premium on the second-factor portfolio is 6%.If portfolio A has a beta of 0.6 on the first factor and 1.8 on the second factor, what is its expected return?


A) 7.0%
B) 8.0%
C) 18.2%
D) 13.0%

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