Problems:
Ques. 4 Explain what the standard deviation of returns is and why it is especially useful in finance, and calculate it for an asset.
Ques. 5 Explain the concept of diversification.
Ques. 6 Describe what the Capital Asset Pricing Model (CAPM) tells us and how to use it to evaluate whether the expected return of an asset is sufficient to compensate an investor for the risks associated with that asset.
Ques. 7 Explain what the weighted average cost of capital for a firm is and why it is often used as a discount rate to evaluate projects.