Assume that Security returns
10.00 points
Assume that security returns are generated by the singleindex model, 
R_{i} = Î±_{i} + Î²_{i}R_{M} + e_{i} 
where R_{i} is the excess return for security i and R_{M} is the marketâ€™s excess return. The riskfree rate is 2%. Suppose also that there are three securities A, B, and C, characterized by the following data: 
Security  Î²_{i}  E(R_{i})  Ïƒ(e_{i}) 
A  1.2  12%  25% 
B  1.3  13  11 
C  1.4  14  20 

a.  If Ïƒ_{M} = 23%, calculate the variance of returns of securities A, B, and C. (Do not round intermediate calculations. Round your answers to the nearest whole number.) 
Variance  
Security A  [removed] 
Security B  [removed] 
Security C  [removed] 

b. 
Now assume that there are an infinite number of assets with return characteristics identical to those ofA, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, andC? (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. Omit the “%” sign in your response.) 
Mean  Variance  
Security A  [removed] %  [removed] 
Security B  [removed]  [removed] 
Security C  [removed]  [removed] 
