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Marie Guild is a senior banker at Basel Banque in Switzerland. She offers her risk averse client, Dr. Zigmund Fraud, two risky portfolios P1 and

Marie Guild is a senior banker at Basel Banque in Switzerland. She offers her risk averse client, Dr. Zigmund Fraud, two risky portfolios P1 and P2. Marie explains that P1 offers an expected return of 21% with a volatility of 20%. P2 offers an expected return of 15% and a volatility of 10%. The risk free rate is 5%. Based on this information, please mark the only CORRECT answer
Answers:

a.

P2 is the worst choice because it offers the lowest expected return.

b.

We cannot compare P1 with P2 without knowing their covariance Cov(P1, P2)

c.

Zigmund should choose P2 because it offers the best reward to risk ratio.

d.

Zigmund should choose P1 because it offers the best reward to risk ratio

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