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According to the CAPM, annual return r of an asset can be modeled by a regression with independent variable of the index (market portfolio) annual return rM as follows: rrf=+(rMrf)+ where rf is risk free rate of return, rMN(M,M2), and N(0,2). Here we assume that rM and are independent. Suppose that rf=0 and we estimate parameters as follows: =0.002,=0.9,and=0.2. a. If the expected index annual return is as 0.1 , that is M=0.1, then what is the expected annual return of the asset? b. Suppose standard deviation of the index annual return is M=0.1. Calculate 99%VaR (=VaR1%(r)) of r. Note that 99% quantile value of the standard normal distribution is q99% =2.326. Hint :r is normal distributed and E(+(rMrf)+)=+E[rM] var(+(rMrf)+)=2var(rMrf)+var()=2var(rM)+var()