15. Consider the multifastor APT with two factors Portfolio A has a beta ofs on factor and beta of 1.25 on factor 2. The risk premiums on the factor 1 and 2 portfolios are 1% and 7% respectively. The risk-free rate of return is 7%. The expected return on portfolio A is if no arbitrage opportunities exist. A 9.25% B. 16.25% C. 4.75% D7256 E. 15.75% Part II (Problem solving). Carefully read the following questions and provide your best answers with relevant interim works, To obtain the full credits, your computational works and final answers must be expressed in a clear manner. Minor rounding errors are not penalized, but it is recommended that you keep your desimal numbers during your computational process. (55 points) 16. The below table shows returns of the three assets (return 1.return 2, return 3) during the three states (Bad, Normal, Good). (15 points) States Probability return 1 return 2 return 3 Bad 0.30 0.12 -0.10 0.30 Normal 0.40 10.08 0.12 0.10 Good 0.30 0.15 0.05 0.00 1) Compute the expected returns of the three assets. In addition, find the covariance between asset I and asset 2 and covariance between asset 1 and 3 and calculate the two corresponding correlation coefficients. (Recall COV(R1,R2) - E[(RI-E(R1)XR2-E(R2))D