1. The capital asset pricing model a. provides a risk-return trade off in which risk is measured in terms of the market volatility b. provides a risk-return trade off in which risk is measured in terms of beta measures risk as the coefficient of variation between security and market rates of return d. depicts the total risk of a security c. 2. Mystery Motors, Inc. (MMI) has an expected return of 15% per year, while Roadrunner Motors, Inc. (RMI) has an expected return of 12% per year. A rational investor will choose a. MMI because of the higher expected return b. RMI because a lower return means lower risk c. MMI if MMI and RMI are of equal risk d. MMI only if the standard deviation of returns for MMI is higher than the standard deviation of returns for RMI 3. Mystery Motors, Inc. (MMI) has the following returns for various states of the economy: or lower MMI's expected dobo return under each State of the economy Probability state of the economy Recession 5% -50% Below Average 25% -3% 10% Average Above Average 20% 20% Boom 15% 45% 35% MMI's overall expected return is 22% b. 11% c. 4.4% d. 9.75% 4. With reference to question 3, above, MMI's standard deviation of returns is a. 4.25% b. 6.47% c. 11.00% d. 20.62%