PLEASE SHOW ALL WORK AND FORMULAS USED

Question 1) There are two assets X and Y with correlation of returns equal to -1. Asset X has an expected return of 21% with a standard deviation of 30%, whereas asset Y has an expected return of 0% with a standard deviation of 12%. Consider an asset Z that has the same standard deviation as Y but whose correlation with X is +1. What is the expected return of Z?

A)8%

B)10%

C)12%

D)14%

E) None of the above.

Question 2:

The following are estimates for stock A:

Expected Return 12%

Beta 0.6

R-square .529

The market index M has a standard deviation of 23% and the risk-free rate is 5%. Compute the firm-specific standard deviation of the regression of excess returns of stock A on the excess returns on the market index. Express your answer as a percent with two decimals.

Question 3:

Which of the following statements is(are) true?

I) The higher the beta of an asset, the higher its systematic risk.

II) The higher the beta of an asset, the higher its firm-specific risk.

III) The higher the beta of an asset, the higher its alpha.