The riskless interest rate is 1%. You hold a portfolio consisting of short-term safe assets and the market portfolio of risky assets, which has a mean return of 9% and a standard deviation of 20%. You are considering the stock of COMPANY X that you believe to have a beta of 1.2 with the market portfolio, and a standard deviation of return of 30%. What is the standard deviation of the idiosyncratic component of COMPANY X return (the residual in the market model regression)? What is the correlation of COMPANY X return with the market's return? If the CAPM holds, what must be the mean excess return on COMPANY X over the riskfree rate? What must be COMPANY X alpha? What must be its Sharpe ratio? Is the Sharpe ratio on COMPANY X higher or lower than the Sharpe ratio on the market? Explain, and generalize to other stocks. Suppose that COMPANY X stock has a higher alpha than the CAPM implies. Explain how to change its weight in your portfolio in such a way as to increase the mean return on your portfolio without changing its variance. (Do this in words, or write down a relevant equation if you can.) Now suppose COMPANY X has a lower alpha than the CAPM implies. How does your answer to part c) change?)