Problem 3 Suppose world described by 1-factor model (F), and we have 2 following securities TA= -0.050 -1.2F+EA B= 0.050 +0.8F + EB a. [2pts) What are the weights on each security A and B if we want to track the asset that has a loading of 0.5 on factor F? I b. [3pts) What is the expected risk-free rate in this world? (Hint: construct the tracking portfolio that has zero loading on factor F) 1 c. 3pts] What is the expected return of factor F? (Hint: construct the tracking portfolio that has a loading of 1 on factor F) d. 1pt] Is there any arbitrage opportunity if expected return on asset, that has a loading of 0.5 on factor F, is 4.50%? Problem 3 Suppose world described by 1-factor model (F), and we have 2 following securities TA= -0.050 -1.2F+EA B= 0.050 +0.8F + EB a. [2pts) What are the weights on each security A and B if we want to track the asset that has a loading of 0.5 on factor F? I b. [3pts) What is the expected risk-free rate in this world? (Hint: construct the tracking portfolio that has zero loading on factor F) 1 c. 3pts] What is the expected return of factor F? (Hint: construct the tracking portfolio that has a loading of 1 on factor F) d. 1pt] Is there any arbitrage opportunity if expected return on asset, that has a loading of 0.5 on factor F, is 4.50%