Two portfolios that each consist entirely of risky assets

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1. Consider two portfolios that each consist entirely of risky assets. Portfolio 1 has an expected return of 10% and a standard deviation of 18%. Portfolio 2 has an expected return of 15% and a standard deviation of 38%. The risk-free rate is 5%. Which statement is true?

a. It is not possible that Portfolio 1 is the 'optimal risky portfolio.'

b. It is not possible that Portfolio 2 is the 'optimal risky portfolio.'

c. Based on the information given, either one could be the optimal risky portfolio

2. Suppose the risk-free rate is 4%, and that Asset X has a standard deviation of 20%. True or false: According to the CAPM, it is not possible for Asset X to have an expected return of 4%.

True

False

Reference no: EM131966337

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