Researchers have shown that the best measure of risk of a security in a large portfolio is the beta of the security, which is captured in the Capital Asset Pricing Model (CAPM). In your own words, briefly explain what beta is? Interpret the beta of zero (0) relative to the market. (2 marks)

b. There are two approaches to estimate cost of equity: CAPM and the dividend growth model. Briefly explain, in your own words, the disadvantages of cost of equity estimation using CAPM. (2 marks)

c. A firm's weighted average cost of capital (WACC) should be a blend of the costs of the different sources of capital, associated with their respective market-based weights. Why are market-based weights more relevant? (2 marks)

d. Briefly explaintwoassumptions in which WACC can be used as a discount rate to value a project. (2 marks)