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%

Question

Quizplus · Accepted Answer

The expected return on portfolio A is 6% + 1.2 * 4% + 0.8 * 3% = 13.2%.

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