Modern "asset allocation" is based upon the model developed by Harry Markowitz. Which of the following statements is/are correctly identified with this model?
1. The risk, return, and covariance of assets are important input variables in creating portfolios.
2. Negatively correlated assets are necessary to reduce the risk of portfolios.
3. In creating a portfolio, diversifying across asset type (e.g., stocks and bonds) is less effective than diversifying within an asset type.
4. The efficient frontier is relatively insensitive to the input variable.
a. 1 and 2 only.
b. 1, 2, and 3 only
c. 1 only.
d. 2 and 4 only.
e. 1, 2, and 4 only