Question: Question 1 (20 marks) Fund A offer an expected return of 8% with a standard deviation of 15%, and Fund B offers an expected return

Question 1 (20 marks) Fund A offer an expected return of

Question 1 (20 marks) Fund A offer an expected return of 8% with a standard deviation of 15%, and Fund B offers an expected return of 5% with a standard deviation of 25%. a. Would Fund B be held by investors? Explain with the aid of a diagram using Markowitz Portfolio theory. (8 marks) b. How would you answer part a. if the correlation coefficient between Funds A and B were 1? Could these expected returns and standard deviations represent an equilibrium in the market? (12 marks)

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