Question 1 : Define the following terms, using graphs or equations to illustrate your answers wherever feasible:
a. Portfolio; feasible set; efficient portfolio; efficient frontier
b. Indifference curve; optimal portfolio
c. Capital Asset Pricing Model (CAPM); Capital Market Line (CML)
d. Characteristic line; beta coefficient, b
c. Arbitrage Pricing Theory (APT)
Question 2 : An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%. the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If b11 = 0.7 and b12 = 0.9, what is Crisp's required return?