6. (20pts) Consider the following three assets. The market risk premium is 5%. Asset B 1.2 1 2 3 risk premium 7% 2.50% 10% 0.6 2 (1) (6pts) Calculate the a of each asset. (2) (8pts) Consider forming zero-beta portfolios using two assets out of these three ones. How many portfolios can you construct and what is the alpha of each one? Now suppose for each portfolio, you can either long or short it. Which portfolio would you choose and what is the strategy (long or short)? (3) (6pts) Now consider a general situation. Suppose there are N assets with a; and B; as the alpha and beta of asset i. Formulate an optimization problem to find the best zero-beta portfolio out of these N assets. 6. (20pts) Consider the following three assets. The market risk premium is 5%. Asset B 1.2 1 2 3 risk premium 7% 2.50% 10% 0.6 2 (1) (6pts) Calculate the a of each asset. (2) (8pts) Consider forming zero-beta portfolios using two assets out of these three ones. How many portfolios can you construct and what is the alpha of each one? Now suppose for each portfolio, you can either long or short it. Which portfolio would you choose and what is the strategy (long or short)? (3) (6pts) Now consider a general situation. Suppose there are N assets with a; and B; as the alpha and beta of asset i. Formulate an optimization problem to find the best zero-beta portfolio out of these N assets