1) Why is it so common to use historical financial data to estimate future market betas?

2) Assume that you have invested half of your wealth in a risk-free asset A and half in a risky portfolio B. Is it theoretically possible to lower your portfolio risk if you move your risk-free asset holdings (A) into another risky portfolio C? In other words, can you ever reduce your risk more by buying a risky security than by buying a risk-free asset?

3) Describe the key assumptions underlying the Capital Asset Pricing Model (CAPM).