Consider a one factor economy. (1) There are two well-diversified portfolios A and B. Their expected returns are 13% and 9% respectively. Their betas are 1.3 and 0.8, respectively. Both portfolios are fairly priced. Calculate the risk free rate and the expected return of the factor portfolio. (12 marks) (2) There is a third well-diversified portfolio C. Its beta is 0.9. It has a forecasted return of 10%. Is there any arbitrage opportunity? If the answer is yes, how to construct the arbitrage portfolio? (12 marks)