PLS USE THE EXCEL

Question 1

True or False:WriteAif both statements are true. WriteBif the first statement is true and the second statement is false. WriteCif the first statement is false and the second is true. WriteDif both statements are false. Explain your answer.

1.Asset diversification results in the reduction of asset variance, compared with a simple linear combination of the variances, that comes from holding two or more assets held in the portfolio, provided that these asset's returns are not perfectly, positively correlated. Given a perfect positive correlation of two risky assets, the minimum variance set is an upward sloping straight line.

2.Risk refers to a situation in which possible future events cannot be defined and probabilities assigned. Uncertainty refers to situations in which there is no viable method of assigning probabilities to future stochastic events.

3.The efficient frontier of the investment opportunity set is the locus of all non-dominated portfolios in the mean-standard deviation space that for a given variance, no other investment opportunity offers a higher expected return. Rational investors elect to hold efficient portfolios, which maximize expected return for a given level of risk or equivalently minimize risk for a given expected return.

4.The Minimum Variance Portfolio (MVP) demarcates or separates the efficient portfolios from the inefficient ones. Rational investors should invest in the MVP.