Applying the capital asset pricing model requires that one find appropriate inputs for the risk-free rate, the market rate of return (and market risk premium), and beta. Why is beta, in particular, difficult to pin down?   a. People don't have ready access to financial data and won't have any source for this information  in the near future. b. The major internet sources of financial data are notoriously unreliable. c. Hackers have been known to manipulate financial data for their own purposes. d. People must rely on historical performance information, and they have to assume that historical relationships continue into the future.

You recently found out that when the market is in recession, ALL assets seem to suffer from some degree of liquidity problems as there are less trades than usual, and thus it is hard to sell an asset without losing some of its fair value. So, you concluded that at least some portion of liquidity risk must be systematic in nature and therefore it must be compensated by the market. To verify this, you cut the market portfolio in half by the illiquidity measure developed by Amihud (2002) [So that you have one relatively liquid portfolio and one relatively illiquid portfolio. Assume that this measure is reliable.] and calculated the market liquidity risk premium as follows:   Market liquidity risk premium = Expected return on the illiquid portfolio - Expected return on the liquid portfolio = [E(RIL) - E(RL)]   Then you formed 5 portfolios from the entire market based on liquidity (Amihud measure) and estimate the factor loading β (called liquidity beta) of each portfolio using [RIL - RL]…

Discuss the importance of market efficiency, and explain why some markets are more efficient than others. Develop a simple understanding of behavioral finance.

Which of the following is NOTa potential problem when estimating and using betas, i.e., which statement is FALSE?   a.  The fact that a security or project may not have a past history that can be used as the basis for calculating beta.   b.  Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different from the "true" or "expected future" beta.   c.  The beta of an "average stock," or "the market," can change over time, sometimes drastically.   d.  Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.   e.  The beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns. This calculated historical beta may differ from the beta that exists in the future. Please Explain for full credit