Assume that security returns are generated by the single$-$index model,

$R_i={}_i+{}_i{R}_M+e_i$

where $R_i$ is the excess return for security i and $R_M$ is the market's excess return. The risk$-$free rate is $2\%.$ Suppose also that there are

three securities $A,B,$ and $C,$ characterized by the following data:

Required:

a$.$ If ${}_M=10\%,$ calculate the variance of returns of securities $A,B,$ and $C.$

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 returns for securities $A,B,$ and $C?$

Complete this question by entering your answers in the tabs below.

If ${}_M=10\%,$ calculate the variance of returns of securities $A,B,$ and $C.$

Note: Do not round intermediate calculations. Round your answers to the nearest whole number.Assume that security returns are generated by the single$-$index model,

Ri $=\backslash$alpha i $+\backslash$beta iRM $+$ ei

where Ri is the excess return for security i and RM is the market$$s excess return. The risk$-$free rate is $2\%.$ Suppose also that there are three securities A$,$ B$,$ and C$,$ characterized by the following data:

Security $\backslash$beta i E$($Ri$)\backslash$sigma $($ei$)$

A $0\mathrm{.}67\%16\%$

B $0\mathrm{.}9107$

C $1\mathrm{.}21310$

Required:

If $\backslash$sigma M $=10\%,$ calculate the variance of returns of securities A$,$ B$,$ and C$.$

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 returns for securities A$,$ B$,$ and C$?$