1. State the assumptions of the mean- variance portfolio theory (3 marks)
2. What conditions need to be met for the investment market to be perfect (3 marks)
3. What is meant by risk aversion? [2 marks]
4. Suppose that a market has two portfolios Q and Z to invest in. Portfolio Z is a portfolio of a single risk free assets. Portfolio Q is a portfolio of risky assets.

Required:

1. Explain the nature of the efficient frontier of these two portfolios. You must clearly state your assumptions [8 marks]
2. Explain the relationship between the efficient frontier in part (I) and portfolio Q [10 marks]
3. Suppose that the investors in this market have homogeneous expectations. Explain the nature of the efficient frontier facing them. [4 marks]
4. Using your answer in part(II) explain the relationship between risk aversion and portfolios Q and z [6 marks]