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Consider Security A, which has a standard deviation of investment returns of 4%. If: the standard deviation of the market return is 5% the correlation between A's return and that of the market is 0.75 the risk-free rate is 5% and the expected return on the market is 10% then calculate: the beta of Security A Security A's expected return.Suppose that just two factors, / and /,, are needed to describe the returns from assets. Asset A is heavily influenced by / , whereas Asset B is heavily influenced by 1 . Suppose also that the expected returns from each of A and B are given by the following equations: E(R() = 4+2/1+/2 E(R ) = 5+1,+2/2 Asset C has equal weighting on the two factors. Write down the equation for the expected return on Asset C.An investor is trying to predict the expected return on a security using the arbitrage pricing theory. She decides that a two-factor model is appropriate and estimates that: 2 -3.0% 1 -0.9% 1, -0.8% by - 0.5 by2 =1.5 (1) be, is numerically greater than b. - what does this imply? Estimate the expected return on the security.An investor has the choice of the following assets that earn rates of return as follows in each of the four possible states of the world: State Probability Asser I Asser 2 Asser 3 0.2 5% 5% 6% 0.3 5% 12% 5% 0.1 5% 4% 0,4 5% 1% Market capitalisation 10.000 17.546 82.454 Determine the market price of risk assuming CAPM holds. Define all terms used. [6]