Suppose that there are two factors represented by:

(1) return on the market portfolio rM

(2) return on Treasury bond portfolio rN

Suppose that the risk-free rate and the factor risk premiums are the following:

rF : 5%

rM - rF : 8%

rN-rF : 2%

Assets A, B and C have the following factor betas:

bM(A)=1.0 bN(A)=1.0

bM(B)=1.5 bN(B)=0.2

bM(C)=1.0 Bn(C)=0.6

a) What are the expected returns on assets A, B and C?

b) Suppose the expected return on asset A is 10%. Construct TWO possible arbitrage portfolios and determine their returns. (need help only for this question)