- Define and discuss the volatility and return characteristics of large stocks versus large stocks and bonds and what affects they have on pricing risk? Give examples to support your answer.
- Why in an efficient capital market, does the cost of capital depend on systematic risk rather than diversifiable risk. Explain your answer using an example from the text.
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- What is an expected return and why must it equal a required return? In what circumstances are these two important?
- What are the three main assumptions of the CAPM and what are their effects on a portfolio. Give examples of your explanation.