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

Question 39

Multiple Choice

Consider a well-diversified portfolio, A, in a two-factor economy. The risk-free rate is 6%, the risk premium on the first factor portfolio is 4%, and the risk premium on the second factor portfolio is 3%. If portfolio A has a beta of 1.2 on the first factor and .8 on the second factor, what is its expected return?


A) 7.0%
B) 8.0%
C) 9.2%
D) 13.0%
E) 13.2%

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