Chapter 8 Homework Template Thoughtfully and thoroughly answer the following questions. You should be able to answer these guestions as you read through your text. 1. Read "Managing Risk in Difficult Times" on pages 263 and 264, a. Describe what happened to the S&P index from April 1993 until March 20157 b. What is one way to reduce the risk of investing? c. What is a "Black Swan" event? 2. Read "Putting Things In Perspective" on pages 264 and 265. 3. Read section 8-1 a. Investors like and they dislike . b. Study panel "a" of figure 8.1 on page 166. What does a steeper line communicate? c. What is "flight to quality"? d. Why is the trade-off between risk and return important for companies trying to create value for their shareholders? 4. Read section 8-2 a. Define Risk: b. What are the two ways an asset's risk can be analyzed? c. What is stand-alone risk? d. When should an investment be undertaken? (last paragraph, page 267) 5. Read section 8-3 (you can skip 8-2a through 8-2e) a. Define the Capital Asset Pricing Model (CAPM) b. The risk and return of an individual stock should be analyzed in terms of what? c. Why may adding Pay Up Inc. to a portfolio be a good idea? 6. Read section 8-3C a. What is the definition of a Beta Coefficient, b? b. Beta measures what? c. What are the two components of a stock's risk? d. How can you eliminate diversifiable risk? Answer question 8-1 found on page 295. a. Would your portfolio be riskless? b. Is the T-bill portfolio truly riskless? c. What is the least risky security you can think of? Explain. Answer question 8-4 found on page 29S. Is it possible to construct a portfolio of real-world stocks that has a required return equal to the risk-free rate? Explain