1. What are the perfect market assumptions?
2. Explain whether the following statements are true or false. In each case, provide justi?cation for your answer:
- In a perfect capital market, expected returns on all bonds must beequal to the risk-free (T-bill) rate.
- In a perfect capital market with risk-neutral investors, expected re-turns on all bonds must equal the risk-free rate.
3. Write down the CAPM formula. What are the economy-wide inputs and what are the ?rm-speci?c inputs?