1. What does the one mutual fund theorem suggest?

a That the world is really just one big mutual fund

b That all should invest 100% in the optimal risky portfolio

c That all should invest in only one risky asset the optimal risky portfolio, and then choose how to divide their wealth between the risk free asset and the optimal risky portfolio.

d This is the idea that as time moves on smaller firms are swallowed by larger firms and eventually there will only be 1 large firm remaining

2. Assume you have a portfolio of assets and you are considering adding an additional asset to the portfolio, assume all of the available choices have the same positive expected return, which type of asset would be the most helpful in terms of diversification:

a. An asset with no correlation with the portfolio

b. An asset with negative correlation with the portfolio

c. An asset with positive correlation with the portfolio

d. An asset with perfect correlation with the portfolio