Hi, I just need the steps and answer for question 2 since I've solved the first one. Thanks!

This problem explores the idea behind APT and factor models. Suppose the statistical properties of all asset returns are described by a single factor model where the market is the single factor. In particular, you can assume that there is a market portfolio and a risk-free asset that both satisfy the factor model equation in class (and in BKM).

In both parts, consider a well-diversified portfolio A with A = 0.4 and A = 2.0.

1. Combine this portfolio with the market portfolio to form a zero-beta portfolio. Calculate the weightings and

   alpha of your zero-beta portfolio. [Hint: what are the alpha and beta of the market portfolio?]

2. Calculate the systematic, idiosyncratic and total risk of your zero-beta portfolio in (1)?