1. Suppose there is only one risky asset in the world, with an uncertain return that is expected to be higher than the risk-free return. Dwight Schrute and Andy Bernard have each chosen an optimal fraction of their wealth to invest in this risky asset. All they care about is the expected return and the risk of their portfolio, measured by the variance of the portfolio returns. If Dwight is half as risk-averse as Andy (ADuigat=21AAyy), what can we conclude about their portfolios? (a) The Sharpe ratio of Dwight's portfolio is larger than the Sharpe ratio of Andy's because he is less risk-averse. (b) Their portfolios have identical Sharpe ratios. (c) The Sharpe ratio of Dwight's portfolio is smaller than the Sharpe ratio of Andy's because he is less risk-averse. (d) We cannot determine which portfolio has a higher expected return based on the information given. 2. You short-sell 300 shares of Harbor Holdings, now selling for $60 per share. What is your maximum possible gain, ignoring transaction costs? (a) $60 (b) $18,000 (c) $350 (d) Unlimited 3. An investor puts up $6,000 but borrows an equal amount of money from his broker to double the amount invested to $12,000. The broker charges 6% on the loan. The stock was originally purchased at $30 per share, and in 1 year the investor sells the stock for $34. The investor's rate of return was (a) 15% (b) 10% (c) 20.67% (d) 18% 4. You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends. What is the geometric average return for the period? (a) 1.31% (b) 2.27% (c) 2.26% (d) 1.58%