2 j Suppose there are three risky assets (indexed by j = 1,2,3) with the following ; and ; when regressed on the market porfolio. j Bj Ej 1 1.20 0.09 2 1.00 0.06 3 0.80 0.04 Assume that the pairwise correlations among ;'s are all equal to 0.25. The variance of the return on market portfolio is = 0.04. Note: here we define risk as the variance. M (a) (5pts) What proportion of the total risk of stock 2 is due to market? 0 and w3 = (b) (5pts) Consider a portfolio with weights wi 0.5, W2 = assets. What is the beta of this portfolio? 0.5 on these three (c) (5pts) What proportion of the total risk of the portfolio in (b) is due to market?