1. Please explain the risk vs. expected rate of return tradeoff, the security market line, and

the determination of beta on this basis. Include an explanation of all the constituents namely,

security market line, risk measure, expected rate of return, risk-free rate of return, and

market rate of return. Include hypothetical examples for better clarity.

2. Explain the weighted average cost of capital (WACC) and its significance and include

hypothetical examples for better clarity.