Question is too long to post, but can someone explain how Portfolio C is the answer, considering it has the LOWEST Sharpe and LOWEST expected return of the three choices. I thought the key sentences such as “plan can pursue an aggressive investment courses and focus on the higher return potential of capital growth,” and “young work force” point to higher expected return and satisfying high Sharpe- Portfolio ‘B’ The only part of the answer that seems to make sense is having “2%” reserve/ market fund, because the fund should invest as much of the asset as possible with long-term horizon.
I don’t have the book, but maybe look at the constraints? The other portfolio’s may violate some of them, hence making them unsuitable.
The answer to this questions answers it perfectly You don’t want to be in a situation where you are invested in a business or companies which matches your current business. That is one of the key takeaways of this question.