1. What is the relationship between monetary base and change in price level (CPI)?
2. Explain the capital asset pricing model (CAPM), including the required assumptions, and the security market line (SML).?
3. Which of the following statements is FALSE?
A. The market portfolio is on the SML, and according to the CAPM, since all other portfolios are inefficient they will not fall on the SML.
B. We can improve the performance of our portfolio by selling stocks with negative alphas.
C. The difference between a stock's expected return and its required return according to the security market line is called the stock's alpha.
D. The risk premium for any security is proportional to its beta with the market.