Suppose 3 risky assets whose random rates of return are governed by = 8+2f + 3f r = 5+ f + 2f r3 = 26+ 6f + 10f where f and f are risk factors with E[ f ]=E[f ]=0. a) You are constructing a riskfree portfolio of these 3 risky assets, whose weights are w, W2 and w3. Explain why the solution of the following 3 equations give the required riskfree portfolio. [2.0] W + W + W3 = 1 2w + W + 6w3 = 0 3w +2w +10W3 = 0 b) After solving the above system of linear equations, we get w=w=2/3 and w3= -1/3. Suppose the expected rates of return of the 3 assets are given by = + 2 + 3 H = A + + 2^ 3 = + + 1032 Evaluate A0, A and . Explain the financial interpretation of the factor risk premia: A and A. [3.0]