QUESTION 5

1. Provide a brief answer of one to three sentences to the following questions:

   a. Portfolio A contains stocks A and B. Stock A and B are perfectly positively correlated. Portfolio B contains stocks D and E. Stocks Dand E are perfectly negatively correlated. If you were a risk adverse investor, which portfolio would you prefer to own and why? (4 marks)

   b. Does an investor holding a portfolio of stocks expect to be rewarded for systematic or unsystematic risk? Briefly explain why and the difference between systematic and unsystematic risk