Assume that security returns are generated by a factor model in which two factors are pervasive. The sensitivities of two securities and of the risk-free asset to each of the two factors are shown below, along with the expected return on each security.
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Factor 1 sensitivity = (150/100) * 0.5 + (-50/100) * 1.5 = 0.
Factor 2 sensitivity = (150/100) * 0.8 + ...
This solution looks at portfolio analysis and expected return.