Suppose you are considering pricing two assets, A and B. The table below summarizes the expected return of the market and the covariance of future returns of A, B and the market M. The risk-free rate is r_f = 2%

1. (10 points) What are the expected rates of return of asset A and B if the CAPM holds?
2. (5 points) What is the riskier asset in an asset pricing sense, A or B? Does this square with the assets standard deviations? Explain.
3. (5 points) Suppose the covariance between the returns of asset A and B changes from 0.000 to 0.090. What is the correlation between the returns of A and B now? Will this change any of the asset pricing relationships derived in (a)?