solution

1. a. What is the Capital Asset Pricing Model (CAPM)? The security market line (SML)?

b. What are the weaknesses of the CAPM?

c. What is the value of the CAPM?

2. Consider the following probability distribution of returns estimated for a proposed project that involves a new ultrasound machine:

a. What is the expected rate of return on the project?

b. What is the projectâ€™s standard deviation of returns?

c. What is the projectâ€™s coefficient of variation (CV) of returns?

d. What type of risk does the standard deviation and CV measure?

e. In what situation is this risk relevant?

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