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Consider an economy with two factors. You identify three well-diversified portfolios A, B and C. Their...

Consider an economy with two factors. You identify three well-diversified portfolios A, B and C. Their details are:

Portfolio Expected return Beta (1st factor) Beta (2nd factor)
A 28% 0.75 1.8
B 18% 0.25 1.1
C 28% 1.25 1.5

What is the risk-free rate in this economy? Show your calculations

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Answer #1
Assume Market rate is 10%
Portfolio Average Beta Expected Return Risk Free rate
A 1.275 0.28                    0.55
B 0.675 0.18                    0.35
C 1.375 0.28                    0.38
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