(i) Explain what the separation theorem implies about optimal investment strategies. [2] Explain why an individual investor wouldn't hold the market portfolio as part of their investment portfolio in practice. [2] You are given the following historical information for a share in Company ABC and for a portfolio of 100 shares. Return (% pa) beta Standard deviation of return (% pa) 20 16 8.5 0.7 ABC Portfolio 10.5 1.1 Use these results to derive the expected return on the market portfolio and the risk-free rate of return assuming the CAPM applies. [3] A student has commented that ABC's lower return and higher standard deviation, relative to the 100-share portfolio, contradicts the predictions of the CAPM. (iv) Discuss the student's comment. [3] 3