There are two independent economic factors M1 and M2. The risk-free rate is 5% and all shares have independent firm-specific components with a standard deviation of 25%. Portfolios A and B are well diversified. Given the data below which equation provides the correct pricing model? A)E(r_P) = 5 + 1.12β_P1 + 11.86β_P2 B)E(r_P) = 5 + 4.96β_P1 + 13.26β_P2 C)E(r_P) = 5 + 3.23β_P1 + 8.46β_P2 D)E(r_P) = 5 + 8.71β_P1 + 9.68β_P2

Question

Quizplus · Accepted Answer

The Answer of There are two independent economic factors M1 and M2. The risk-free rate is 5% and all shares have independent firm-specific components with a standard deviation of 25%. Portfolios A and B are well diversified. Given the data below which equation provides the correct pricing model? A)E(r_P) = 5 + 1.12β_P1 + 11.86β_P2 B)E(r_P) = 5 + 4.96β_P1 + 13.26β_P2 C)E(r_P) = 5 + 3.23β_P1 + 8.46β_P2 D)E(r_P) = 5 + 8.71β_P1 + 9.68β_P2

There Are Two Independent Economic Factors M1 and M2