10. The Single Index Model assumes the following equation for asset returns. Ri=ai+biRM+i Suppose that the market index has an expected rate of return of RM=10% and the variance of the market index returns is M2=40%. The risk-free rate of return is RF= 7%. Consider the information table for the following assets, where ai is asset is constant return, bi is asset is market factor loading, and i2 is asset is variance of its idiosyncratic component. a. Compute the expected returns and the standard deviation of returns for the three assets above. [15 marks] b. Rank the above assets according to their Sharpe ratio from the most to the least desirable. [15 marks] c. Find the composition of the optimal risky portfolio with respect to assets 1,2 and 3 when the market index is tradable and short sales are allowed. [30 marks ] 10. The Single Index Model assumes the following equation for asset returns. Ri=ai+biRM+i Suppose that the market index has an expected rate of return of RM=10% and the variance of the market index returns is M2=40%. The risk-free rate of return is RF= 7%. Consider the information table for the following assets, where ai is asset is constant return, bi is asset is market factor loading, and i2 is asset is variance of its idiosyncratic component. a. Compute the expected returns and the standard deviation of returns for the three assets above. [15 marks] b. Rank the above assets according to their Sharpe ratio from the most to the least desirable. [15 marks] c. Find the composition of the optimal risky portfolio with respect to assets 1,2 and 3 when the market index is tradable and short sales are allowed. [30 marks ]