The betas and variances of three assets are beta_1 = 0.5, beta_2 = 1, beta_3 = 1.5, and sigma^2_1 = 20%, sigma^2_2 = 10%, sigam^2_3 of = 30%, respectively. The market variance is sigam^2_m = 10%. Compute the covariance matrix implied from the single index model. Solution The covariance matrix implied by this model is: = 2 001 + where 2 00 is the variance of market returns, is the vector of slopes, and is the diagonal matrix containing residual variances ii. Call ij the (i, j)-th entry of ..