1. Consider two portfolios that each consist entirely of risky assets. Portfolio 1 has an expected return of 10% and a standard deviation of 18%. Portfolio 2 has an expected return of 15% and a standard deviation of 38%. The risk-free rate is 5%. Which statement is true?
a. It is not possible that Portfolio 1 is the 'optimal risky portfolio.'
b. It is not possible that Portfolio 2 is the 'optimal risky portfolio.'
c. Based on the information given, either one could be the optimal risky portfolio
2. Suppose the risk-free rate is 4%, and that Asset X has a standard deviation of 20%. True or false: According to the CAPM, it is not possible for Asset X to have an expected return of 4%.
True
False