1. In the Capital Asset Pricing Model (CAPM), explain in words (i.e. not using the formula) what does beta measure and why is beta considered to be an appropriate risk measure.

Also explain what kind of stocks (e.g. in which industry) generally have low betas, and in which case would an investor want to invest in stocks with low betas.

2.Explain the main similarities and differences between the CAPM and Arbitrage Pricing Theory (APT)

3. Tony is an analyst covering BHP, one of the biggest companies in the ASX, while Kate is an analyst covering CTM, a very small, and relatively unknown company also listed in the ASX. Explain who is more likely to uncover mispricing, and why.

What will be the risk associated with investing in BHP or CTM?

4.What is Overconfidence bias? What is the likely cause of the Overconfidence bias? How does it generally affect investors?

5.

Considering the following two bonds:

Bond A: 5% Coupon; 5 Year Maturity

Bond B: 6% Coupon; 5 Year Maturity

The current yield on both bonds is 3%

Explain conceptually (without any calculations) the followings:

- Which bond will have higher price and why.

- Which bond price change will be greater (and why) if the yield changes to 4%.

Also explain what does the yield-to-maturity (YTM) measure? And what are the issue(s) using the YTM as a measure.