There are two portfolios A and B, which you think capture macroeconomic risks. Denote the excess returns of these portfolios by Rand Rg. Consider a two-factor model specification: R = a + BARA + BB. Rg+ e which implies that in expectation: E[R] = a; + BAE[R] + BB. E[R]. There are two individual stocks x,y: BA 0 0.8 10 BB 0.8 1.4 ER:1 6% 9% 0 What are the factors risk premia (E[RA] and E[R]])? Asset v has B = 1.7 and BB. = 0.5. What is the expected excess return of asset v if it has no abnormal return? Asset w has Baw = 1.3 and BB. = 2.5. The expected excess return of stock w is 17%. Would you buy or short sell this stock? Explain. You wish to test the factors model in the data. You collect data on several portfolios, and compute their exposures to factors A and B. You run the following regression (notice that it is similar to a second-stage Fama-Macbeth (1973) regression) R = V0 + Y1BA + Y2BB.: + Y3BA.BB.: + e If the model is true, and there are no abnormal returns, what is your null-hypothesis for what Yo, V1, V2, and Y3 should be