There Are Two Independent Economic Factors M1 and M2 $\beta$ _P1 + 11

Multiple Choice

There are two independent economic factors M1 and M2.The risk-free rate is 5% and all stocks have independent firm-specific components with a standard deviation of 25%.Portfolios A and B are well diversified.Given the data below which equation provides the correct pricing model?

A) E(r_P) = 5 + 1.12 $\beta$ _P1 + 11.86 $\beta$ _P2
B) E(r_P) = 5 + 4.96 $\beta$ _P1 + 13.26 $\beta$ _P2
C) E(r_P) = 5 + 3.23 $\beta$ _P1 + 8.46 $\beta$ _P2
D) E(r_P) = 5 + 8.71 $\beta$ _P1 + 9.68 $\beta$ _P2