1. Individual stock return is determined as follows: Ri = Bis + lị. Here, S stands for a systematic risk factor with mea

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1. Individual stock return is determined as follows: Ri = Bis + lị. Here, S stands for a systematic risk factor with mean of m and standard deviation of o. l¡ stands for a firm- specific risk factor with mean of zero and standard deviation of vi. (1) Are Rị and R; correlated? Find the correlation coefficient. (2) If we form an equal-weighted portfolio with N individual stocks, what is the correlation coefficient between the equal-weighted portfolio return and R;? (3) Let Bi = 0, vi = 0.1, i = 1, ...,100. That is, we consider 100 individual stocks. What is the distribution of the equal-weighted portfolio return? (4) Let Bi = i/100, m= 0 = 0.1, i = 1, ...,200. vị is randomly chosen between 0.1 and 0.3. That is, we consider 200 individual stocks. A simulated data is contained in the data file. Form 5 portfolios: portfolio 1 is an equal-weighted portfolio containing i=1,...,40, portfolio 2 is an equal-weighted portfolio containing i=41,...,80, and so on. Plot expected returns and volatilities of 5 portfolios and individual stocks on the same plane.