a. In the context of the efficient market hypothesis, explain what an effective market is? In you answer, make sure that you discuss its implication on stock prices. [2 marks]

b. Researchers have shown that the best measure of risk of a security in a large portfolio is the beta() of the security, which is captured in the Capital Asset Pricing Model (CAPM). In your own words, briefly explain what beta is? Interpret the beta of one (1.00) relative to the market. [2 marks]