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  3. 4. suppose we have three stocks, stock a has retur

4. Suppose we have three stocks, stock A has return ra = 5% and volatility...

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4. Suppose we have three stocks, stock A has return ra = 5% and volatility of a = 5%, stock B has return r = 8% and volatility of op = 8%, and stock C has rc = 7% and volatility of oc = 6%. (a) (3 points) Draw out the three returns in mean-volatility space. (b) (3 points) Which stock would a generic mean-variance investor prefer? Why? (c) (4 points) Suppose that one of the investor's indifference curve passes through stock A and stock B. Draw this indifference curve on the plot. Which stock would the mean-variance investor prefer? Why? 4. Suppose we have three stocks, stock A has return ra = 5% and volatility of a = 5%, stock B has return r = 8% and volatility of op = 8%, and stock C has rc = 7% and volatility of oc = 6%. (a) (3 points) Draw out the three returns in mean-volatility space. (b) (3 points) Which stock would a generic mean-variance investor prefer? Why? (c) (4 points) Suppose that one of the investor's indifference curve passes through stock A and stock B. Draw this indifference curve on the plot. Which stock would the mean-variance investor prefer? Why

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