Question: 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%

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% 6 7% 9% Beta 1.2 1.4 Risk-free 1% rate 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) 5%

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