Compute the expected returns of these two portfolios

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Reference no: EM131414177

How much should be invested in each of the stocks in exercise 6.3 to design two portfolios? The first portfolio has the following attributes:

factor 1 beta = 1
factor 2 beta = 0
The second portfolio has the attributes:
factor 1 beta = 0
factor 2 beta = 1

Compute the expected returns of these two portfolios. Then compute the risk premiums of these two portfolios assuming the risk-free rate is the "zero-beta rate" implied by the factor equations for the three stocks in exercise 6.3. This is the expected return of a portfolio with factor betas of zero.

Reference no: EM131414177

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