(a) A multi-factor analysis reveals that your equity portfolio has the following factor loading on the four risk factors. The risk premium () for these four factors are also presented. (i) If you want to reduce the Distress risk exposure to 0 , what will be the expected return of your portfolio? (ii) Suppose there is a portfolio with b1=1.0,b2=0,b3=0 and b4=0, use this portfolio to remove inflation risk from your equity portfolio. What is the return on the new combined portfolio? (15 marks) (b) Discuss the reasons given by Lakonishok, Shleifer, and Vishny (1993) that Book-toMarket ratio is not a proxy for risk