TRUE OR FALSE. If false explain why.

1. Evidence for reduced stock-market risk at long horizons is evidence against weak-form market efficiency.

2. Consider two mean-variance investors who are not leverage constrained, they can invest in a safe asset and two stocks. If their risky portfolio holds different shares of each stock it must be that they have different risk aversion.

3. An investor with $100,000 of financial wealth to invest and safe labour income with a present value of $100,000 should invest twice as much in risky assets as an otherwise identical investor with the same financial wealth but with no labour income.

4. According to the Capital Asset Pricing Model (CAPM)

a) under rational expectations the market portfolio has the highest Sharpe ratio of any portfolio.

b) however, there are several reasons why in practice the market portfolio may not have the

highest Sharpe ratio.