2) The two assets X and Y are priced by the CAPM, so that rx =ry + Bx(rm ry) + Ex ry=r; +By (TM-rs)+ey Recall that according to the CAPM Cov(ex.ru)=0 Cov(cy,rM)=0 Covex, ey)=0 (a) Now consider an equally weighted portfolio of assets X and Y. What are the systematic and the unsystematic risks of the portfolio? (b) Now consider an equally weighted portfolio of some arbitrary number, N, of assets (all of which are priced by the CAPM). What do you think that the unsystematic risk of the portfolio is? You don't need to provide a formal proof. (c) What would happen to the unsystematic risk as the number of assets becomes very large? 2) The two assets X and Y are priced by the CAPM, so that rx =ry + Bx(rm ry) + Ex ry=r; +By (TM-rs)+ey Recall that according to the CAPM Cov(ex.ru)=0 Cov(cy,rM)=0 Covex, ey)=0 (a) Now consider an equally weighted portfolio of assets X and Y. What are the systematic and the unsystematic risks of the portfolio? (b) Now consider an equally weighted portfolio of some arbitrary number, N, of assets (all of which are priced by the CAPM). What do you think that the unsystematic risk of the portfolio is? You don't need to provide a formal proof. (c) What would happen to the unsystematic risk as the number of assets becomes very large