1.

There are only 2 assets to invest in, both being risky. AAPL has an expected return of 10% and volatility of 15%. MSFT has an expected return of 12% and volatility of 18%. Which one of the following statements is correct?

100% invested in MSFT is an efficient portfolio.

100% invested in AAPL is an efficient portfolio.

On the expected return-volatility space, the set of all feasible risky portfolios is a straight line.

On the expected return-volatility space, the set of all feasible risky portfolios is a curve that does not go through any of the 2 risky assets.

2-

Investors can form risky portfolios out of more than 2 risky assets. Which of the following statements is correct?

Out of all feasible risky portfolios, an efficient portfolio should have the lowest volatility.

Out of all feasible risky portfolios, the minimum variance portfolio should have the lowest volatility.

Out of all feasible risky portfolios, an efficient portfolio should have the highest expected return.

It is efficient to invest 100% in the risky asset with the highest expected return and highest volatility

3-

Investors can form complete portfolios out of a risk-free asset and a risky portfolio. The risky portfolio can be formed out of 2 risky stocks: AAPL with an expected return of 10% and volatility of 15%, and MSFT with an expected return of 14% and volatility of 18%. Mary is more risk averse than Tom and both has a total of $1000 to invest in the risky assets. According to portfolio theory, which of the following is consistent with both investors making the optimal portfolio choices?

Mary invests $0 in AAPL and $1000 in MSFT; Tom invests $1000 in AAPL and $0 in MSFT.

Mary invests $200 in AAPL and $800 in MSFT; Tom invests $200 in AAPL and $800 in MSFT.

Mary invests $1000 in AAPL and $0 in MSFT; Tom invests $0 in AAPL and $1000 in MSFT.

Mary invests $500 in AAPL and $500 in MSFT; Tom invests $900 in AAPL and $100 in MSFT.