Let the information on your portfolio be given as follows. You have three assets in the basket. The "beta's" among them are given as follows; B1= -0.45, B2= 0.89 B3= 1.2, Answer the following questions;

1. Why do we need these "beta's" to construct the portfolio?
2. If the risk-free rate is given as 3%, what are the required returns for asset 1 and asset 2 if the market rate of return is expected to have 10%?
3. Is it possible to construct a risk-free (or zero-beta) portfolio by combining asset 1 and asset 2? If yes, what is the required return for this portfolio? If the transaction cost for this portfolio requires 4.5% of commission, will you do it?
4. If you'd like to form a portfolio with these three assets that mimic the overall market, what are the weights of this portfolio? (Notice that there may be more than one answer for this problem).