Suppose You Are Working with Two Factor Portfolios, Portfolio 1

question 63

Multiple Choice

Suppose you are working with two factor portfolios, portfolio 1 and portfolio 2. The portfolios have expected returns of 15% and 6%, respectively. Based on this information, what would be the expected return on well-diversified portfolio A, if A has a beta of 0.80 on the first factor and 0.50 on the second factor? The risk-free rate is 3%.

• A) 15.2%
• B) 14.1%
• C) 13.3%
• D) 10.7%
• E) 8.4%

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