1.) Which concept listed below is UNABLE to explain the tendency of individual investors to hold underdiversified portfolios?

A. Familiarity bias.

B. Disposition effect.

C. Relative wealth concerns ("Keeping up with the Joneses" type preferences).

D. All of the proposed options explain why investors hold underdiversified portfolios.

2.) You have identified a stock that, given your current portfolio, has an expected return that exceeds your required return. That stock is currently not part of your portfolio and its Sharpe ratio is lower than the Sharpe ratio of your portfolio. What can you conclude about your current portfolio?

A. Your current portfolio is not efficient because its Sharpe ratio can be increased by adding a long position in the stock to your portfolio.

B. Your current portfolio is not efficient because its Sharpe ratio can be increased by adding a short position in the stock to your portfolio.

C. Your current portfolio is efficient because its Sharpe ratio is higher than theone of the stock.

D. Your current portfolio is efficient because the expected return on the stock exceeds the required return that you calculated using your current portfolio