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Loadings on the risk factors in the economy

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The risk-free asset, some portfolios, and their loadings on the risk factors in the economy are as follows:

Portfolio

β1

β2

E[r]

A

0.0

1.5

7.5%

B

1.0

0.8

17%

C

1.1

-0.6

12%

F1

1.0

0.0

?

F2

0.0

1.0

?

Risk-free

0.0

0.0

0%

Assuming A and B are correctly priced, and all the portfolios are well-diversified, which of the following is correct?

A. C is overpriced

B. C is underpriced

C. C is correctly priced

D. Not enough information to answer this question

Reference no: EM133074485

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