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Define the following terms, using graphs or equations to illustrate your answers wherever feasible:

a. Portfolio; feasible set; efficient portfolio; efficient frontier

b. Indifference curve; optimal portfolio

c. Capital Asset Pricing Model (CAPM); Capital Market Line (CML)

d. Characteristic line; beta coefficient, b

e. Arbitrage Pricing Theory (APT); Fama-French three-factor model; behavioral finance

The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its...

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