Consider three equities whose returns follow a two-factor model: r~1=0.01+2F~1r~2=0.02+1F~1+1F~2+~2r~3=0.03+~121F~2+~3 (a) How much should be invested in each of the above three securities to design a portfolio with a beta on F~1 of 1 , and a beta on F~2 of 0 ? Hint: The portfolio weights should sum to one. For an example, see Example 6.5 in the textbook. (b) What is the expected return of this portfolio if E[F~1]=0.05 ? Hint: You can assume that the model is well specified, that is E[~1]=E[~2]=E[~3]=0. Consider three equities whose returns follow a two-factor model: r~1=0.01+2F~1r~2=0.02+1F~1+1F~2+~2r~3=0.03+~121F~2+~3 (a) How much should be invested in each of the above three securities to design a portfolio with a beta on F~1 of 1 , and a beta on F~2 of 0 ? Hint: The portfolio weights should sum to one. For an example, see Example 6.5 in the textbook. (b) What is the expected return of this portfolio if E[F~1]=0.05 ? Hint: You can assume that the model is well specified, that is E[~1]=E[~2]=E[~3]=0