An investor is considering a portfolio consisting of investment in three securities 1, 2, and 3. The means and standard deviations of expected returns for the three individual securities are: Security Expected Return Std. Dev. 1 2.0% 2.5% 2 4.0% 6.0% 3 3.0% 4.0% Table 4: Mean and Standard Deviation of Returns The investor is only interested in portfolios that are long the three securities (no short selling). He asks you as his investment advisor to construct a portfolio of the three securities that has the highest expected return possible but with a standard deviation of return of no more than 4.2%. You run a standard portfolio optimization model and determine that the highest return portfolio with a standard deviation of no more than 4.2% has an expected return of 3.6%. After considering your recommendation, he tells you that he is very risk averse and would be willing to accept a return of 2.0% for a portfolio with a standard deviation of 1.8% or less. The plot in Figure 1 shows the expected return plotted against the standard deviation for five points described below:

Point Description A Portfolio consisting entirely of security 1 B Portfolio consisting entirely of security 2 C Portfolio consisting entirely of security 3 D Portfolio with maximum return given a standard deviation of 4.2% or less. E Investors desired risk/return point Table 5: Portfolio Descriptions

Please answer the following questions about these points. Answer each question either T (True), F (False) or CT (Cannot Tell given the information given). a) Point A is on the efficient frontier (T/F/CT) b) Point B is on the efficient frontier (T/F/CT) c) Point D is on the efficient frontier (T/F/CT) d) Point E is achievable; that is, there is some portfolio consisting only of the three securities with the same mean and standard deviation of return (T/F/CT)