1.Your client asks why you would combine Portfolio (A), which has a lower Sharpe ratio, with Portfolio (B), which has a higher Sharpe ratio, to arrive at the optimal risky portfolio. Write a clear and concise response to your client.

2.Your client believes in the weak form of market efficiency as it relates to security selection. Is Portfolio A's performance enough justification to prove or disprove this belief? Why or why not?

3.After further discussions with your client, it turns out that she believes in the semi-strong form of market efficiency as it relates ONLY to security selection, what portfolio substitution(s) would you make to your optimal risky portfolio? No calculations are necessary.

4.After meeting with the client, she informs you that she prefers a return higher than that of the optimal risky portfolio.

a.Is this possible to achieve and if so, how?

b.What does that indicate about your initial assumptions regarding the indifference curve?

5.Portfolio A returned 9.20% p.a. over the evaluation period compared to a 5.00% p.a. for the S&P 500. This equates to a difference or out performance of 4.20% p.a. According to CAPM, the annualized alpha of portfolio A is 4.74% p.a.Explain the difference between the two numbers. (Note: It is not due to rounding)