5) There are two independent risk factors, or risk premiums (M1 and M2), in a financial world. You can think of these risk factors as market risk premium and commodity price risk premium in a 2-factor pricing model. The risk-free rate is 5%. Portfolios A and B are well diversified. Given the information below, can you write a proper 2-factor pricing model in this financial world for all stocks or portfolios? (Hint 1: calculate the 2 risk factors, M1 and M2, first; Hint 2: the format of the pricing model can be E(1P) 5% = Bei * M1 + Be2 M2) Portfolio Beta on M1 A 1.5 B 1.0 Beta on M2 E[ro] 1.75 35% 0.65 20% 6) Assume there is one factor (the market excess return) that drives asset returns. There are two well-diversified portfolios A and B, where portfolio A has an expected return of 10% and a beta of 2 and portfolio B has an expected return of 8% and a beta of 1. The risk-free rate is 2%. Does an arbitrage opportunity exist? (Please provide all necessary work.)