James Taylor is a portfolio manager at Glod Corporation, and he manages portfolios that lie on the Markowitz efficient frontier. James asks Rebecca Davis, a CFA, to comment about two of the portfolios he manages: the Lion Associates and the Rainstorm Inc. portfolios, both located on the Markowitz efficient frontier. The two portfolios have however different expected returns. Rebecca reports to James that the Rainstorm portfolio is identical to the market portfolio and then it must be superior to the Lion portfolio.

a. Do you agree with Rebeccas conclusion that the Rainstorm portfolio is superior to the Lion portfolio? Justify your response in the context of the capital market line.

b. James emphasizes that the Rainstorm portfolio has a higher expected return because it has greater non-systematic risk than Lions portfolio. Do you agree or disagree with Jamess remark? Explain your answer.