Question 3 (15 marks) After graduating from JCU with a Banking \& Finance degree, you work as a quantitative analysis in a boutique hedge fund. One of your job responsibilities is to design the investment strategies. You strongly believe that all risky assets should be priced by CAPM. Thus, you would like to apply the CAPM theory to constructing an investment portfolio. Required: a) Write down the steps (no calculation) to show how you would carry out the longshort strategy based on CAPM in practice. (6 marks) b) During the risk-on period, investors expect a better growth prospect and performance of the market. According to CAPM, which characteristic(s) of stocks should have a better performance? How does it affect your security market line (SML) when money is cheap during risk-on period? (5 marks) c) You suspect that there are other risks should be priced in CAPM. What are the possible risk factors you would consider and include them in your asset pricing models? (4 marks) Question 3 (15 marks) After graduating from JCU with a Banking \& Finance degree, you work as a quantitative analysis in a boutique hedge fund. One of your job responsibilities is to design the investment strategies. You strongly believe that all risky assets should be priced by CAPM. Thus, you would like to apply the CAPM theory to constructing an investment portfolio. Required: a) Write down the steps (no calculation) to show how you would carry out the longshort strategy based on CAPM in practice. (6 marks) b) During the risk-on period, investors expect a better growth prospect and performance of the market. According to CAPM, which characteristic(s) of stocks should have a better performance? How does it affect your security market line (SML) when money is cheap during risk-on period? (5 marks) c) You suspect that there are other risks should be priced in CAPM. What are the possible risk factors you would consider and include them in your asset pricing models? (4 marks)