Question 3 Stocks offer an expected rate of return of 18%, with a standard deviation of 22%. Gold offers an expected return of 10% with a standard deviation of 30%. A security analyst remarks, Since gold is dominated by stocks both in expected return and in risk, no one would hold gold." Required: Respond to the security analyst's remark with detail explanation under what condition the remark is correct and under what condition it is wrong. Support your answer with graphs. (Sketch the graphs with clear labelling in your answer sheet.) (Total: 15 marks) Question 4 Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock A B Expected Return 10% 15% Correlation=-1 Standard Deviation 5% 10% Required: Suppose that it is possible to borrow at the risk-free rate. What must be the value of the risk- free rate? (Total: 10 marks) Question 3 Stocks offer an expected rate of return of 18%, with a standard deviation of 22%. Gold offers an expected return of 10% with a standard deviation of 30%. A security analyst remarks, Since gold is dominated by stocks both in expected return and in risk, no one would hold gold." Required: Respond to the security analyst's remark with detail explanation under what condition the remark is correct and under what condition it is wrong. Support your answer with graphs. (Sketch the graphs with clear labelling in your answer sheet.) (Total: 15 marks) Question 4 Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock A B Expected Return 10% 15% Correlation=-1 Standard Deviation 5% 10% Required: Suppose that it is possible to borrow at the risk-free rate. What must be the value of the risk- free rate? (Total: 10 marks)