3. You have the following diversified portfolio options (see their expected return and standard deviations), eliminate which portfolios have uninteresting risk-return tradeoff due to the availability of some of the other listed portfolios. (Eliminate all but three) Indicate which three are not eliminated and as such should be considered for investment.

Expected return standard deviation

Portfolio 1 15% 27%

Portfolio 2 9% 18%

Portfolio 3 5% 0%

Portfolio 4 12% 26%

Portfolio 5 14% 28%

Portfolio 6 10% 23%

Portfolio 7 12% 24%

Portfolio 8 10% 22%

Portfolio 9 4% 8%

Portfolio 10 19% 45%

A. Portfolios: 3, 8 and 10

B. Portfolios: 3, 5 and 9

C. Portfolios: 2, 6 and 11

D. Portfolios: 4, 8 and 10

4.

If you solve for what fraction of your wealth (y) you should invest in the risky asset and you get the answer of 1.4, what does this mean? Assume you can borrow at the risk free rate.

		That you should invest 100% of your wealth in the risky asset
		That you should invest 140% of your wealth in the risky asset by borrowing at the risk free rate
		That you should short 140% of the risky asset and invest in the risk free asset
		That you should invest somewhere between 100% and 140% of your wealth in the risky asset by borrowing at the risk free rate.