Suppose the risk-free rate of return is 5%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 12%. According to the capital asset pricing model:

- The CAPM implies that investors require a higher return to hold highly volatile securities. Is this true or false? Provide a brief discussion.

-Briefly explain why we refer to the opportunity cost of capital, instead of just “cost of capital” or “discount rate”.