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There are two assets following single-factor model, Asset 1 and Asset 2. Their model parameters are given as follow, Asseta; Bi 1 0.10 1.5 2

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There are two assets following single-factor model, Asset 1 and Asset 2. Their model parameters are given as follow, Asseta; Bi 1 0.10 1.5 2 0.08 0.5 Assume E[f]=e1=e2=0. a) Construct a zero-beta portfolio from these two risky assets. b) Find the factor risk premium 1 using the principle of no-arbitrage. c) What is the meaning of factor risk premium in single-factor models

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