RC = -1x6% +x8% = 10%. Short Question (SQ4) (15%) Suppose asset returns are driven by three factors, GDP growth rate (factor 1) and interest rate (factor 2), and Oil prices (factor 3), which are uncorrelated with one another. There are two well-diversified portfolios A and B and one stock C of interest Their factor sensitivities are given in the following table, and so are the risk premia of the tracking portfolios for Factor L 2, and 3. Portfolio A Portfolio B Stock C Expected Return premim Standard deviations Factor Sensitivity for Factor 1 bA1 = +1.2 bB1 = +1.0 bc = -1.0 Tracking portfolio for F1 8% 6% 10% Factor Sensitivity for Factor 2 ba2 = 0.5 bB2 = -1.0 bc2= +2.0 Tracking portfolio for F2 10% 8%, 16% Factor Sensitivity for Factor 3 bA3 = 0.3 bB3 = 0.5 bc3 = 0 Tracking portfolio for F3 5% 3% 6% The risk-free rate is 2%. Rf (A) What are the efficient levels of risk premia for Portfolio A, Portfolio B, and stock C (3%) (B) What are the standard deviations of Portfolios A and B (2%) (C) If you observ