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

question 31

Multiple Choice

Consider a well-diversified portfolio, A, in a two-factor economy. The risk-free rate is 5%, the risk premium on the first-factor portfolio is 4%, and the risk premium on the second-factor portfolio is 6%. If portfolio A has a beta of 0.6 on the first factor and 1.8 on the second factor, what is its expected return?

• A) 7.0%
• B) 8.0%
• C) 18.2%
• D) 13.0%
• E) 13.2%

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