a) [6 marks] Consider three stocks with returns that have the following two-factor structure ri-r B1f1+B2f2+i, i=1, 2, 3. The stocks have the same factor betas B1=1.5 and B2=0.5. Factors are uncorrelated with each other and with the shocks. However, the shocks are correlated, and their correlations are given by corr(1, 2)=0.1, corr(1, 3)=0.2, corr(82, 3)=-0.3. All shocks have zero mean and standard deviation 0=30%. Both factors have the same volatility of=20%. Factor expected returns are E[fi]=5% and E[f2]=10%. What is the Sharpe ratio of an equally weighted portfolio formed using the three stocks? What is the Sharpe ratio of the equally weighted portfolio when shocks &i are uncorrelated with each other? Compare the two Sharpe ratios and discuss your result. a) [6 marks] Consider three stocks with returns that have the following two-factor structure ri-r B1f1+B2f2+i, i=1, 2, 3. The stocks have the same factor betas B1=1.5 and B2=0.5. Factors are uncorrelated with each other and with the shocks. However, the shocks are correlated, and their correlations are given by corr(1, 2)=0.1, corr(1, 3)=0.2, corr(82, 3)=-0.3. All shocks have zero mean and standard deviation 0=30%. Both factors have the same volatility of=20%. Factor expected returns are E[fi]=5% and E[f2]=10%. What is the Sharpe ratio of an equally weighted portfolio formed using the three stocks? What is the Sharpe ratio of the equally weighted portfolio when shocks &i are uncorrelated with each other? Compare the two Sharpe ratios and discuss your result