Question 2 (28 marks)

Year	Return on Fund A	Return on Fund B
1	4%	10%
2	5%	11%
3	5%	11%
4	7%	9%
5	5%	5%
6	7%	9%
Beta	1.2	1.4
Risk-free rate	1%

a. Which fund should be selected based on mean-variance criterion?

(9 marks)

b. Is your conclusion in part a) above necessarily correct? Why?

(5 marks)

c. Which fund performed better if the selected fund was part of a much larger portfolio? Why?

(7 marks)

d. Which fund performed better if the selected fund was held in isolation? Why?

(7 marks)