1. You found two portfolios with returns that are perfectly described by the growth rate of Covid-19 cases in the world, F. Portfolio A has expected rate of return E[RA]=10% and ba=0.35; portfolio B has expected rate of return E[Re]=17% and bg=0.7. The expected growth rate of Covid-19 cases is E[F]=12%. a) Write down the factor equations in deviation from means form. (2 pts) b) Suppose there is no arbitrage opportunity between portfolios A and B, what must the risk-free return be? (4 pts) c) Suppose there is a third portfolio, C, whose growth also only depends on the rate of growth in Covid-19 cases. Its bc is 0.875. What expected rate of return must portfolio Chave so that there is no arbitrage opportunity? (4 pts) 1. You found two portfolios with returns that are perfectly described by the growth rate of Covid-19 cases in the world, F. Portfolio A has expected rate of return E[RA]=10% and ba=0.35; portfolio B has expected rate of return E[Re]=17% and bg=0.7. The expected growth rate of Covid-19 cases is E[F]=12%. a) Write down the factor equations in deviation from means form. (2 pts) b) Suppose there is no arbitrage opportunity between portfolios A and B, what must the risk-free return be? (4 pts) c) Suppose there is a third portfolio, C, whose growth also only depends on the rate of growth in Covid-19 cases. Its bc is 0.875. What expected rate of return must portfolio Chave so that there is no arbitrage opportunity? (4 pts)