3. Assume that there are two factors that price assets. Interest rate rf = 3%. You have the following information about two well-diversified arbitrage-free risky assets. Total: 35 marks. Asset E(r) 1 2 1 12% 1.5 2 8% 1 1 Answer the following questions: (a) Calculate the risk premium of two risk factors. (15 marks) (b) There is a third well-diversified portfolio with = 2 and = 0.5. What is this portfolio's arbitrage free expected return? (5 marks) (c) Suppose the forecasted return of the portfolio in the previous question is 10%. Show how you could construct an arbitrage portfolio. (15 marks)