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  3. a) why are investors' utility curves important in

a) Why are investors' utility curves important in portfolio theory? Explain how a given investor...

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a) Why are investors' utility curves important in portfolio theory? Explain how a given investor selects an optimal portfolio. Will this always be diversified portfolio, or could this be a single asset? Explain your answer. ( 8 marks) b) Why do most assets of the same category show positive return correlations with each other? Would you expect positive correlations between different types of assets such as returns on Treasury bills, Common stock, and Commercial real estate? Why or why not? (5 marks) c) It is argued that test of the Efficient Market Hypothesis (EMH) is really a test of a "joint hypothesis". What are the joint hypotheses being tested? Discuss. (7 marks) (Total 20 marks)

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