Question: You observe the following: M = 20%, E (rM ) = 8%, rf = 4%, i,M = 1. When you regress ri on rM ,

You observe the following: M = 20%, E (rM ) = 8%, rf = 4%, i,M = 1. When you regress ri on rM , theR2 is 25%. SUPPOSE THE CAPM IS TRUE!

1. What is E (ri)?

2. What is 2i ?

3. What is the Sharpe ratio of asset i?

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