3. (a) Stock A has expected return of 11% and standard deviation of returns of 20%; stock B has expected return of 14% and standard deviation of returns of 24%; stock C has expected return of 16% and standard deviation of returns of 16%. The return correlation between A and B is 0.4, between A and C is 0.2, and between B and C is 0.3. Compute (i) the expected return and (ii) the standard deviation of returns for a portfolio that is 20% invested in A, 40% invested in B, and 40% invested in C. (16 points) (b) Suppose that the risk-free rate is 2.5%, and that the market risk premium is 5.5%. Assume that the Capital Asset Pricing Model (CAPM) holds. i. What are the market betas of stocks A and B from question 2(a)? [10 points) ii. If the market portfolio has standard deviation of returns of 25%, what is the cor- relation of returns between stock A and the market portfolio, and between stock B and the market portfolio? (10 points)