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Homework 8 - Fall 2008 Engineering 120 Industrial...

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Fall 2008 Engineering 120 November 7, 2008 Page 1 of 1 Homework #8 1. For each of the following statements, determine whether it is true or false. Justify your answer providing either a proof or an (counter) example as appropriate. Assume that the Capital Asset Pricing Model holds. Further assume that there is a risk free asset with rate r 0 at which you can deposit or borrow unlimited amounts of money. a. Suppose that an investor wishes to attain an expected rate of return of ˆ r . If the investor is using the Markowitzs mean variance model, the amount of money she invests in the risk free asset will be independent of the ˆ r value she chooses. b. Let portfolio A and portfolio B be two efficient portfolios. If the standard deviation of portfolio A is greater than the standard deviation of portfolio B, then the expected return of portfolio A is also greater than the expected return of portfolio B. c. If an asset is uncorrelated with the market portfolio, then the expected rate of return of this
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