Question: Assume that security retums are generated by the single-index model. Ri - ai + BiRM + ei where R, is the excess return for security

Assume that security retums are generated by the single-index model. Ri

Assume that security retums are generated by the single-index model. Ri - ai + BiRM + ei where R, is the excess return for security i and RM is the market's excess return. The risk-free rate is 29. Suppose also that there are three securities A, B, and C. characterized by the following data: A 1.1 1976 19% Security Bi B 1.3 C 1.5 E(Ri) (ei) 12 10 14 13 a. If OM = 14%, calculate the variance of returns of securities A, B, and C. Variance Security A Security B Security C b. Now assume that there are an infinite number of assets with return characteristics identical to those of A. B. and C. respectively. What will be the mean and variance of excess retums for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round Intermedlate calculations. Round your answers to the nearest whole number.) Mean Variance Security A Security B Security C

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