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

question 39

Multiple Choice

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%

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Definitions:

Process Reengineering

A business management strategy focusing on the analysis and redesign of workflows and processes within an organization to achieve significant improvements in critical performance measures, such as quality, cost, service, and speed.

Business Processes

A set of structured activities and tasks carried out by an organization to produce a specific service or product or to achieve particular business objectives.

Organization

An entity comprising multiple people, such as a company or association, structured to achieve specific goals or tasks.