Question: Question 2 (8 marks) Consider two assets A and B. Asset A offers an expected rate of return of 12% with a standard deviation of

Question 2 (8 marks)
Consider two assets A and B. Asset A offers an expected rate of return of 12% with a standard deviation
of 25%. Asset B offers an expected rate of return of 8% with a standard deviation of 30%. Assume that
the risk-free interest rate (rf) is zero.
Given that Stock A has higher return and lower risk than Stock B, would investors hold Stock B? If so,
explain graphically under what conditions would investors hold Stock B.

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