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:

Formal Operational

A stage in Piaget's theory of cognitive development where individuals gain the ability to think abstractly and logically.

Secure Attachment

A strong and healthy emotional bond between a child and their caregiver, characterized by trust and a sense of safety.

Reason Abstractly

The cognitive ability to think about concepts, ideas, and principles that are not physically present or tangible.

Formal Operational

A stage of cognitive development, as per Piaget, where an individual gains the ability to think abstractly and logically.