a) Can you be certain that a rational investor with the utility function u(x)=-3x + 45...

 

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a) Can you be certain that a rational investor with the utility function u(x)=-3x + 45 x will prefer mean-variance efficient portfolios? Explain. (8 marks) b) If you did NOT know an investor's utility function, what other conditions will be required so that we are certain that a rational investor will prefer mean-variance efficient portfolios? (8 marks) c) The correlation between the returns on risky assets A and B is zero. Can we combine A and B to create a risk free portfolio? Explain. (10 marks) d) Can two distinct risky assets A and B be combined to create a risk free portfolio that comprises A and B only? Explain. (12 marks) e) Define the efficient frontier of risky assets, mathematically, where there is no risk free asset but short sales on risky assets are allowed. (12 marks) a) Can you be certain that a rational investor with the utility function u(x)=-3x + 45 x will prefer mean-variance efficient portfolios? Explain. (8 marks) b) If you did NOT know an investor's utility function, what other conditions will be required so that we are certain that a rational investor will prefer mean-variance efficient portfolios? (8 marks) c) The correlation between the returns on risky assets A and B is zero. Can we combine A and B to create a risk free portfolio? Explain. (10 marks) d) Can two distinct risky assets A and B be combined to create a risk free portfolio that comprises A and B only? Explain. (12 marks) e) Define the efficient frontier of risky assets, mathematically, where there is no risk free asset but short sales on risky assets are allowed. (12 marks)