Question: Problem 10-8 Assume that security returns are generated by the single-index model, Mi az + OR + where Ri is the excess return for security

Problem 10-8 Assume that security returns are generated by the single-index model, Mi az + OR + where Ri is the excess return for security i and is the market's excess return. The risk-free rate is 3% Suppose also that there are three securities A, B and C characterized by the following data: Security A S C of 1.4 1.6 1.8 E(R) 14% 16 18 (e) 23% 14 17 a. If on=22%, 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 returns for securities A B and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.) Mean Variance Security A Security B Security C

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