1. Explain why the market's beta is 1 and the beta for the risk-free investment (e.g. T-bill) is zero.
2. Suppose Altria Corp ( which has two major divisions -cigarettes and food) sold off one of the cigarette division. Explain why change ( if any ) this would have on its systematic risk.
3. An economist has predicted that during the next 12 years, prices in the US will increase 55%. He expects a further increase of 25% in the subsequent 8 years. Compute the annual inflation rate,f, for the entire 20 year period?