Question 2 (28 marks) 4 5 6 Beta Risk- free rate a. b. C. Year Return on Fund A 1 4% 2 3 d. 5% 5% 7% 5% 7% 1.2 1% Return on Fund B 10% 11% 11% 9% 5% 9% 1.4 Which fund should be selected based on mean-variance criterion? (9 marks) Is your conclusion in part a) above necessarily correct? Why? (5 marks) Which fund performed better if the selected fund was part of a much larger portfolio? Why? (7 marks) Which fund performed better if the selected fund was held in isolation? Why? (7 marks)

Question 2 (28 marks) a. Which fund should be selected based on mean-variance criterion? ( 9 marks) b. Is your conclusion in part a) above necessarily correct? Why? (5 marks) c. Which fund performed better if the selected fund was part of a much larger portfolio? Why? (7 marks) d. Which fund performed better if the selected fund was held in isolation? Why? (7 marks) Question 2 (28 marks) a. Which fund should be selected based on mean-variance criterion? ( 9 marks) b. Is your conclusion in part a) above necessarily correct? Why? (5 marks) c. Which fund performed better if the selected fund was part of a much larger portfolio? Why? (7 marks) d. Which fund performed better if the selected fund was held in isolation? Why? (7 marks)