(a) With reference to an appropriate diagram, explain whythe market portfolio of risky assets must lie at the tangency between the capital market line and the efficient frontier for risky assets.[WORD LIMIT: 500 words][25marks]
(b) With reference to a worked numerical example, discuss how the assumptions of prospect theory make investment behaviour depend upon whether a stock is trading at a gain or at a loss. [WORD LIMIT: 500 words][25marks]
2.Explain why the concept of “closing out” is so important in the functioning of futures markets. [WORD LIMIT: 1,500 words]
Explain why the concept of “closing out” is so important in the functioning of futures markets.
