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5. Assume that the following two-factor model describes asset returns: i=rf+1iF1+2iF2, 1 where rf is the risk-free rate, and where F1 and F2 are two macro variables. The following three assets are observed: (a) According to the Arbitrage Pricing Theory (APT), what is the relationship between expected asset return and the factors? (b) Consider an asset D with the following characteristics: D=15%,1D=2, and 2D=1. Is there an arbitrage opportunity? If so, provide one such (appropriately hedged) strategy. 5. Assume that the following two-factor model describes asset returns: i=rf+1iF1+2iF2, 1 where rf is the risk-free rate, and where F1 and F2 are two macro variables. The following three assets are observed: (a) According to the Arbitrage Pricing Theory (APT), what is the relationship between expected asset return and the factors? (b) Consider an asset D with the following characteristics: D=15%,1D=2, and 2D=1. Is there an arbitrage opportunity? If so, provide one such (appropriately hedged) strategy