Question: this is all the info PROBLEM 2. (a) (8 Points) After examining years of daily data on hundreds of US equities, you discover the following

this is all the info

PROBLEM 2. (a) (8 Points) After examining years of daily data on hundreds of US equities, you discover the following relationship between the monthly returns of 3 stocks, 31, 32, and 33: R1 = R2+R3 . Find a riskfree portfolio of the three stocks. What should the effective annual risk free rate be? Why? (b) (16 Points) Let R1 and R2 be the daily return of two equities, and let #1, p2, of and 0% be the mean and variance of the returns. If the returns are perfectly correlated, then determine the relationship that governs R1 and R2. If there are no arbitrage opportunities in the market, determine the risk free rate. Hint: Recall that two random variables R1 and R2 are perfectly correlated if and only if R1 = a X R2+b, for some constants a, # 0 and b. Based on the information you have, determine the unknowns 0,1). Consider only the cases \"a 75 1\

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