Consider the following single index specification: R,- = a,- + ,8,- RM + e,-, Where R,- is the return on security i (X or Y), RM is the return on index M (a broad market index) and e,- is a zeromean white noise random variable not correlated with anything. Assume that the single index specification correctly describes returns of all securities and the risk-free rate is constant at 4%. Furthermore, you have the following descriptive statistics for returns of Stock X, Y, and index M. Expected return Return Standard Deviation Bi Stock X 13% 30% 1.5 Stock Y 9% 15% 0.5 Index M 10% 20% 1 a. Calculate Jensen's alpha of Stock Y. (3 marks) b. Calculate the information ratio of Stock Y. (5 marks) c. In light of your answer in part a), design a zero net investment alpha capturing portfolio consisting of Stock X, Stock Y, and Index M. That is, design a portfolio that yields a positive expected return by capturing the alpha in part a) with i) no exposure to the index (zero beta) and ii) zero net investment. Use Stock Y as the numeraire i.e., express the investments (long or short) on Stock X and Index M based on a $1 investment (long or short) in Stock Y