Q#3 Assume that the following market model adequately describes the return generating behavior of risky assets ?KMt Here: Rit The return on the i th asset at Timet Mt -The return on a portfolio containing all risky assets in some proportion at Time t R M t and e it are statistically independent Short selling (i.e., negative positions) is allowed in the market. You are given the following information Asset Beta Expected Return Var(ei) .9 9.41% Y 1.3 13.05 Z 1.6 15 0149 0229 The variance of the market is .0172, and there are no transaction costs a. Calculate the standard deviation of returns for each asset. b. Calculate the variance of return of three portfolios containing an infinite number of asset types A, B, or C, respectively c. Assume the risk-free rate is 3.3 percent and the expected return on the market is10.6 percent. Which asset will not be held by rational investors? d. What equilibrium state will emerge such that no arbitrage opportunities exist? Why