Question: 1. Is it possible that a security with a positive standard deviation of returns could have a beta of zero (excluding T-bills)? Explain. From the

1. Is it possible that a security with a positive standard deviation of returns could have a beta of zero (excluding T-bills)? Explain. From the CAPM, what is the expected return on such an asset? Is it possible that a security with a positive standard deviation could have an expected return from the CAPM that is less than the risk-free rate? If so, what would its beta be? Would anyone be willing to purchase such a stock? Discuss.

once the debt issued by a company becomes risky, issuing additional debt causes the expected return on debt to increase at an increasing rate. Suppose the company continues to issue additional debt beyond the current D/E ratio. Is it possible that the company can issue so much debt that rd > ra? If so, how? If not, why not? Explain your reasoning.

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