1. "The Capital Asset Pricing Model (CAPM) is a flawless theoretical model that is capable of explaining the relationship between systematic risk and expected return for assets." Discuss the above statement. [12.5 marks] 2. "Peter's risk preference is such that his MRS is higher than that of David. Therefore, with the availability of capital market (where two-fund separation is possible), their utility is maximised by two different portfolios. As the results, they will always invest in different combinations of risky assets." Discuss the above statement. [12.5 marks] 22