c) Now we have all the information we need to calculate the initial position in each security. Note: We will ignore systematic risk at first, to make things easier, and we'll account for it later in the process. Compute the initial position in each security, and scale them so that these weights sum to one. What are the weights? AIG: 67.50% CITI: 32.50% d) Using the weights you calculated in step (c), calculate the weighted average alpha, the weighted average beta, and the weighted average residual variance. Weighted average alpha: 0.362% Weighted average beta: 1.7618 Weighted average residual variance: 0.060% e) Now that you know the weights for the individual assets, calculate how much money you should put in the active portfolio. [Hint: see step 5 from Bodie, Kane, and Marcus, page 266] The initial weight in the active portfolio is 61.57% f) Next, we need to adjust the active portfolio weight you calculated in step (e) to account for systematic risk. What is the weight on the active portfolio, after this adjustment? [Hint: see step 7 from the "Summary of Optimization Procedure" in Bodie, Kane, and Marcus, page 266] After correcting for the systematic risk, we allocate 115.967% to the risky portfolio and -15.96% to the market (passive) portfolio