Question: Given the return equation for asset i: ()= + ()+() , where () is uncorrelated with () and has variance ^2 a) Derive the variance

Given the return equation for asset i: ()= + ()+() , where () is uncorrelated with () and has variance ^2 a) Derive the variance of asset i (^2) in terms of market variance (^2m )and the firm-specific variance (^2) b) Express the covariance (Cov(Ri,R)) and correlation (i) between asset i and the market in terms of market volatility ()

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