1. Recommend an alternative to the CAPM for analyzing capital assets. Provide support for your recommendation.
2. Interest rates on 5-year Treasury securities and 8-year Treasury securities are currently 5.5% and 6.8% respectively. If the pure expectations theory is correct, what does the market believe that 3-year Treasury securities will yield 5 years from now?
3. Assume the inflation rate is expected to be 3% next year and 4% thereafter. If the real risk-free rate is 2.5%, what would be the nominal risk-free rate in year 1 and year 4? If the maturity risk premium is 0.5%, what is the yield on a 4-year T-Bond?