Consider an investor who cannot short risky assets but can borrow or lend at the risk free rate (=2%).

There are 2 risky assets: A and B.

Expected return of A=10%, st. dev. of A = 30%.

Expected return of B=8%, st. dev. of B = 20%.

Are the following statements True, False, or Ambiguous? Provide a justification for your answer.

a)Suppose an investor can invest (long) in exactly one risky asset. In this case, the investor should invest in A and not in B.

b)Suppose an investor can invest (long) in both risky assets. In this case, the investor should not invest in B.