Suppose that there are two risky assets to invest in. One offers a higher return than the other, but it also has a higher standard deviation. Will one of these assets always lie on the efficient frontier? Explain. HINTS: RETURN, STANDARD DEVIATION, EFFICIENT FRONTIER, SECTION (EFFICIENT PORTFOLIO) EXPECTED RETURN AND STANDARD DEVIATION RELATIONSHIP EFFICIENT FRONTIER) 2. Discuss why is the relationship between expected return and standard deviation for portfolios of risky and risk-free assets linear HINTS: EXPECTED RETURN AND STANDARD DEVIATION RELATIONSHIP EFFICIENT FRONTIER) 3. Explain how the homogeneous expectations assumption leads to the conclusion in the Capital Asset pricing Model (CAPM) that the optimal risky portfolio is the market portfolio. HINTS: HOMOGENEOUS EXPECTATION, CAPM 4. Suppose that investors generally become less risk averse. Explain what effect would this have on stock prices and on expected returns. HINTS: RISK APPETITE, RISK INDIFFERENCE, RISK ADVERSE, RISK TAKER.