Answer 3-8

Assignment: Risk and Return 1. Which of the following firms is better investment? Why? Firm X Firmy Rate of Return (96) -70 0 15 100 Expected Rate of Return 2. Which of the following investments is better than others? Why? Prob. balls USR HT 0 55 9.8 124 Rate of Return (%) 3. (True/False. Explain.) A risk averse investor will prefer a well-diversified portfolio over a single asset portfolio. 4. (True/False. Explain.) In some cases, diversification makes an investor worse off. 5. Is it possible to build a risk-free portfolio using risky assets? If yes, how? If no, why not? 6. What is worst portfolio you can make? How bad is it? 7. If an investor chooses to hold only a single stock (doesn't diversify), would the investor be compensated for the extra risk they bear? 8. How would a fall in inflation or a fall in risk aversion affect the security market line