QUESTION $3$

does the CAPM predict about the expected return on such an asset? Can you give an explanation for your answer?

a$.$

the risk$-$free rate. A negative beta asset would carry a negative risk premium because of its value as a diversification instrument.

b$.$

than the risk$-$free rate. A positive beta asset would carry a negative risk premium because of its value as a diversification instrument.

QUESTION $4$

Briefly explain the covariance of a security with the rest of a well$-$diversified portfolio is a more appropriate measure of the risk of a security than the security$\text{'}$s variance.

a$.$

covariance is the appropriate measure of risk

b$.$

portfolio, covariance is the appropriate measure of risk

QUESTION $5$

a$.$

of price movements is not an adequate measure of the appropriateness of adding oil stocks to a portfolio.

b$.$

reflect diversifiable plus non$-$diversifiable risk, observing the standard deviation of price movements is an adequate measure of the appropriateness of adding oil stocks to a portfolio.

c$.$

returns.