1. Throughout corporate finance, we mentioned the importance of the risk-free rate of return in determining the cost of debt and the cost of capital. Briefly explain:

• Are risk-free rates really risk free?
• What are the risks of government securities?
• Why do we still use government bond yields as our risk-free rates if they still carry risk?

2.Throughout our discussion on risks and returns, we discussed the different statistical approaches to estimating risks. Briefly explain the following terms and what they are measuring in terms of corporate finance and how they are used on a stand-alone and on a portfolio basis:

• Standard deviation
• Variance
• covariance