You are an investor considering buying shares in Dart plc and Trent plc. The expected return on Dart is 15% and the expected return on Trent is 12%. The variance of Darts return is 20% and the variance of Trents return is 30%. The beta value of Dart is 1.5 and the beta value of Trent is 0.5. The return on the market portfolio is 15% and the return on short-dated government bonds is 8%.

(1) Is either Dart or Trent or both a good investment according to the Capital Asset Pricing Model (CAPM)? Briefly explain your answer in the light of the data given regarding expected returns and variances. Please draw a diagram.

(2) Now suppose that the return on short-dated government bonds rises to 10% and the return on the market portfolio falls to 13%. What has happened to the attitudes of investors in this case? What will be the effect of this change on the investment decision you would recommend with regard to Dart and Trent? Please draw a diagram. Explain your answer in the light of changes in investor attitudes.