Define and Explain (30 points) 1. (10 points) What are the pitfalls of using the Payback Period model? 1 2. (10 points) What is the problem of using the covariance to compare the relation between different assets? How can you solve this problem? 3. (10 points) You have gathered 100 data points from past returns on asset A and t market portfolio return. You compute that = 1, the average return on the market portfolio is 12%, and on asset A is 15%. You also know the risk free rate is 2%. Th implies the CAPM does not hold