1. Assume that the following two-index model describes returns: R; = a; + biili + bi2l2 +e; Assume that the following three portfolios are observed. Portfolio Expected Return bil biz A 0.5 B 12.0 13.4 12.0 1 3 3 0.2 C -0.5 Find the equation of the plane that must describe equilibrium returns. 2. Referring to the results of Problem 1, illustrate the arbitrage opportunities that would exist if a portfolio called D with the following properties were observed: RD = 10 bpi = 2 bp2 = 0 1. Assume that the following two-index model describes returns: R; = a; + biili + bi2l2 +e; Assume that the following three portfolios are observed. Portfolio Expected Return bil biz A 0.5 B 12.0 13.4 12.0 1 3 3 0.2 C -0.5 Find the equation of the plane that must describe equilibrium returns. 2. Referring to the results of Problem 1, illustrate the arbitrage opportunities that would exist if a portfolio called D with the following properties were observed: RD = 10 bpi = 2 bp2 = 0