For each of the following statements, judge if it is true or false, and provide a detailed explanation behind your answers.

a) Rolls critique is that the market is never truly in equilibrium and hence one can never truly test whether the CAPM holds.

b) The figure below shows the risk and expected return of 4 given assets.

Consider an investor with Mean-Variance preferences, and the statement: If the investor is indifferent between assets A and D, then she prefers C to B; but if she is indifferent between B and C, she prefers A to D.

c) Suppose you make a scatter plot, each point representing a pair of contemporaneous returns from a time series of returns on the market portfolio and a single asset. If the CAPM holds, you would expect all points to line up perfectly on a straight line, the slope of which is the assets beta.

expected return (u) volatility (0) 15% 20%