1. If investors were not risk averse on average, but rather were either risk indifferent (neutral) or even liked risk, would the risk-return concepts presented in this chapter be valid? 2. Define the characteristic line and its beta. 3. Why is beta a measure of systematic risk? What is its meaning? 4. What is the required rate of return of a stock? How can it be measured? 5. Is the security market line constant over time? Why or why not? 6. What would be the effect of the following changes on the market price of a company's stock, all other things the same? a. Investors demand a higher required rate of return for stocks in general. b. The covariance between the company's rate of return and that for the market decreases. c. The standard deviation of the probability distribution of rates of return for the company's stock increases. d. Market expectations of the growth of future earnings (and dividends) of the company are revised downward. 7. Suppose that you are highly risk averse but that you still invest in common stocks. Will the betas of the stocks in which you invest be more or less than 1.0 ? Why? 8. If a security is undervalued in terms of the capital-asset pricing model, what will happen if investors come to recognize this undervaluation