Question 2 (15 points) You are considering an investment in three different ETFs and their tickers are: ABC, XYZ, and DEF. Each ETF contains a well-diversified basket of equities and you know the following information about them Market Beta (x) Standard Deviation (0) Er ABC 1.2 44.72% ? XYZ 0.9 42.43% 10.0% DEF 1.0 43,59% 12.0% a. Assume the CAPM model hold. What is the expected retum of ABC? b. Suppose the market has priced portfolio ABC to return 14%. To take advantage of this arbitrage opportunity, you will short one asset and take a long position in another asset to hedge your risk. Describe your hedging portfolio. What are the weights of each asset in this portfolio? Question 2 (15 points) You are considering an investment in three different ETFs and their tickers are: ABC, XYZ, and DEF. Each ETF contains a well-diversified basket of equities and you know the following information about them Market Beta (x) Standard Deviation (0) Er ABC 1.2 44.72% ? XYZ 0.9 42.43% 10.0% DEF 1.0 43,59% 12.0% a. Assume the CAPM model hold. What is the expected retum of ABC? b. Suppose the market has priced portfolio ABC to return 14%. To take advantage of this arbitrage opportunity, you will short one asset and take a long position in another asset to hedge your risk. Describe your hedging portfolio. What are the weights of each asset in this portfolio