Solution-Stock returns can be explained by two-factor model

Stock returns can be explained by two-factor model

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Reference no: EM131388313

Assume that stock returns can be explained by a two-factor model. Company-specific risks for all stocks are independent. The table shows the information for two diversified portfolios. If the risk-free rate is 2.5 percent, what are the risk premiums for each factor in this model? Please explain how you got the answer.

	Beta 1	Beta 2	E(R)
Portfolio 1	0.72	1.02	12%
Portfolio 2	1.62	-0.33	8%

Reference no: EM131388313

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Stock returns can be explained by two-factor model

Reference no: EM131388313

Reference no: EM131388313

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