What would you recommend to an investor who is considering an investment which, according to its beta, plots above the security market line (SML)?

a) Invest; return is high relative to risk.

b) Don't invest; risk is high relative to return.

c) Invest; stocks above the SML have very little market risk.

d) Don't invest; stocks above the SML have too much unique risk.

When calculating a project's payback period, cash flows are discounted at:

a) the opportunity cost of capital.

b) the internal rate of return.

c) the risk-free rate of return.

d) a discount rate of zero.