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 r0 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
This is the end of the preview.
access the rest of the document.