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Question
There are two independent economic factors, M1 and M2. The risk-free rate is 5%, and all stocks 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(rP) = 5 + 1.12βP1 + 11.86βP2
B. E(rP) = 5 + 4.96βP1 + 13.26βP2
C. E(rP) = 5 + 3.23βP1 + 8.46βP2
D. E(rP) = 5 + 8.71βP1 + 9.68βP2
Answer
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Related questions
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Q:
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D. The answer cannot be determined from the information given.