1. If an investor wants to hold an efficient portfolio that offers an expected return of 12%, should the investor select portfolio A that exhibits a standard deviation of 4% or portfolio C that has a standard deviation of 2%? (Assume that both the portfolios offer an expected return of 12%.)

A) The investor should select portfolio C.

B) The investor should select portfolio A.

C) The rational investor will be indifferent about the portfolio selection.

2. Which of the following is the correct formula for the CML?

A) rP = rRF + [(rM rRF )/M ]P

B) ri = rRF + (RPM )bi

C) ri = rRF + (rM rRF )bi