I have attached the problem & the answer. Please provide the work. Thank you very much in advance.

Assume that security returns are generated by the single-index model R = 0; + BR+ e, where R is the excess return for security i, and Rm is the market's excess return. The risk-free rate is 3%. Suppose that there are three securities, A and B characterized by the table below Security Stock A Stock B B, 1.25 1.5 E(R). % 12.5 12 (c). % 25 35 a. If om+.20, calculate the variance of returns of securities, A and B. b. Now assume that there is an infinite number of assets with return characteristics identical to those of A and B, respectively. If one forms a well-diversified portfolio of type A securities, what will be the mean and variance of the portfolio excess returns? What about portfolios composed only of type B stocks? c. Are there arbitrage opportunities in the market of question b? If so, what would be an arbitrage strategy? d. Now consider a single security A from question a and a well diversified portfolio B from question b. Are there arbitrage opportunities in this market? If so, what would be an arbitrage strategy? 1. a. Use formula for variance os a security which return follows a single-index model: o = Bom + ole;)? to find: o = 1250%, o = 2125% b. For a well-diversified portfolio which follows a single-index model the variance is given by o? = Bzo. Hence, o= 625%?, o = 900%2 E(RA) = 12.5%, E(RA) = 12% c. Slope of security A is 10, slope of security B is 8. Arbitrage strategy: short portfolio B and buy portfolio C in which wa = 1.2 and wr-bill = -2. d. There are no arbitrage strategies since security-specific risk of A will affect any strategy which includes security A, portfolio B and T-bills