2. (25%) Suppose that the retulnus of all asset i satisfy the factor model 1; = ; +; i = I..... whore ha d be are factor loadings of the risk factors and respectively. Consider a portfolio where the assets i and i are chosen xnch that biji , and be #bje. (a) For the portfolio given in (1). what is Ex? (1) For the portfolio rin (1) to have to exposure to any factor risk, slow that the factor loadings bil.be, bil, and be unist satisfy bje b;2-bie for all i and j. bil - Dil (c) Uuder the condition in part (b) and using the no arbitrage argument, show that there exists a constant lo such that = Cl for all i, where ci is a constant. 0; -- his (d) Show that there exist constants 11 and 12 such that the expected return Hi for any asset i satisfies Hi = lo + li bir + lobe. 2. (25%) Suppose that the retulnus of all asset i satisfy the factor model 1; = ; +; i = I..... whore ha d be are factor loadings of the risk factors and respectively. Consider a portfolio where the assets i and i are chosen xnch that biji , and be #bje. (a) For the portfolio given in (1). what is Ex? (1) For the portfolio rin (1) to have to exposure to any factor risk, slow that the factor loadings bil.be, bil, and be unist satisfy bje b;2-bie for all i and j. bil - Dil (c) Uuder the condition in part (b) and using the no arbitrage argument, show that there exists a constant lo such that = Cl for all i, where ci is a constant. 0; -- his (d) Show that there exist constants 11 and 12 such that the expected return Hi for any asset i satisfies Hi = lo + li bir + lobe