Draw a diagram of the CML your client faces with the borrowing constraints. Superimpose on it two sets of indifference curves, one for a client who will choose to borrow, and one for a client who will invest in both the index fund and a money market fund.
Answer to relevant QuestionsWhat is the range of risk aversion for which the client will neither borrow nor lend, that is, for which y = 1? The expected return on T-bills is 5 percent and the same on the Composite index is 9.24 percent. Calculate the expected return and standard deviation of portfolios invested in T bills and the Composite index with weights as ...Compute the estimated three-year risk premiums, SDs, and Sharpe ratios of the two portfolios. If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently. The following is scenario for three stocks constructed by the security analysts of Pf Inc. Construct an arbitrage portfolio using these stocks.
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