The following questions deal with the capital asset pricing model (CAPM).

a. State the capital asset pricing model and define all terms.

b. Which parameter in the CAPM represents the measure of risk? How is this risk measure computed?

c. What type of risk does the measure you identified in part b measures? Define this type of risk.

d. Are there other risks that affect the return on a security? Explain.

e. Why is the risk you identified in part d not included in the CAPM?