Please help me on this question.

(a) CAPM beta of HF is
Here 1.2% is the return on hedge fund determined by the regression equation assuming that the market return in previous period is the current market return plus the error term. Since error term is uncorrelated, we can expect the market return to be 1% in both the periods.
Finally, using the CAPM equation and solving for beta, the value determined is 5.5 for beta, keeping the risk-free rate at 0.1% and the market risk premium to be 0.2%.
The alpha return can be determined by subtracting the market return from the expected return. The market return is 1% and the actual return is 1.2%. Thus, the alpha is 0.2%.
(b) The answer to part (a) is not a fund’s true risk exposure because it does not factor for the error term. Even though the covariance between the current market return and previous period’s return is zero. It does not conclude that the variables are uncorrelated. We need to test the regression equation for to determine whether there exists a significant correlation among the two variables or not.
The market risk exposure can be determined using the ANOVA table wherein the coefficient on the independent variable will be the beta for the return on the hedge fund. This beta can be used to determine the actual risk exposure of the hedge fund’s return. Answer to (a) is also invalid...