Assume the CAPM model. Consider the following equation for the (random) rate of return of asset i, for i = 1, 2, 3, where M refers to the market portfolio, and rf is the risk free rate of interest. It is assumed that and rM are uncorrelated. (Recall that var( ) is termed the nonsystematic risk) Refer to the following incomplete table: Bi Var(e) 0.6 1.5 0.8 Asset i E(ri) 0.144 0.27 0.1 0.05 0.06 2 0.2841 (Keep 4 decimal places to your answers, e.g. xxx.1234.) 1. Detemine r 2. Determine E(r) 3. Determine E(r3) 2 4. Determine 5. Determine 1. 6. Determine 2. Assume the CAPM model. Consider the following equation for the (random) rate of return of asset i, for i = 1, 2, 3, where M refers to the market portfolio, and rf is the risk free rate of interest. It is assumed that and rM are uncorrelated. (Recall that var( ) is termed the nonsystematic risk) Refer to the following incomplete table: Bi Var(e) 0.6 1.5 0.8 Asset i E(ri) 0.144 0.27 0.1 0.05 0.06 2 0.2841 (Keep 4 decimal places to your answers, e.g. xxx.1234.) 1. Detemine r 2. Determine E(r) 3. Determine E(r3) 2 4. Determine 5. Determine 1. 6. Determine 2