• Critically evaluate the following statement: Playing the stock market is like gambling. Such speculative investing has no social value, other than the pleasure people get from this form of gambling.
• Is it possible for the risk premium to be negative before an investment is undertaken? Can the risk premium be negative after the fact? Explain
• What is the difference between arithmetic and geometric returns? Suppose you invested in a stock for at least 10 years. Which number is more important to you, the arithmetic or geometric return?
• What is the difference between uncertainty and risk?
• If a portfolio has a positive investment in every asset, can the expected return on the portfolio be greater than that on every asset in the portfolio? Can it be less than that on every asset in the portfolio? If you answer yes to one or both of these questions, give an example to support your answer.
• Is it possible that a risky asset could have a beta of zero? Explain. Based on CAPM, what is the expected return on such asset? Is it possible that a risky asset could have a negative beta? What does CAPM predict about the expected return on such asset? Explain.
• Consider the following statement: For the APT to be useful, the number of systematic risk factors must be small. Do you agree or disagree with this statement? Why
• What is the relationship between the one-factor model and the CAPM?