Annualising with autocorrelation

A fund of illiquid small caps reports monthly returns with $\rho_1=0.25$, $\rho_2=0.10$ and $\rho_k=0$ for $k\ge3$. Compute $\eta(12)$ from (4.14) and the percentage by which $\sqrt{12}$ scaling overstates the annual Sharpe ratio. Explain why stale prices produce positive autocorrelation.