The graph below shows the expected return-risk tradeoff among portfolios of risky assets. Risk-free treasury bills...

 

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The graph below shows the expected return-risk tradeoff among portfolios of risky assets. Risk-free treasury bills have return rf. Copy the graph and use it to answer the following questions. Please read through the entire question first, which should help you manage your space so you do not have to redraw the graph over and over again. E(rp) " Op (a) (2 points) Indicate the location of the efficient portfolios that are combinations of the risky assets only (excluding the risk-free treasuries). (b) (3 points) On the set of risky asset efficient portfolios, indicate a representative portfolio that would be chosen by a very risk averse investor and a representa- tive portfolio that would be chosen by a risk tolerant investor. Again, assume that investing in risk-free treasuries is impossible. (c) (2 points) Sketch the set of efficient portfolios that are combinations of risky assets and the risk-free treasuries. (d) (3 points) On this set of efficient portfolios, indicate a representative portfo- lio that would be chosen by a very risk averse investor and a representative portfolio that would be chosen by a risk tolerant investor. (e) (6 points) Using your answers to the above questions, explain the mutual fund separation theorem. The graph below shows the expected return-risk tradeoff among portfolios of risky assets. Risk-free treasury bills have return rf. Copy the graph and use it to answer the following questions. Please read through the entire question first, which should help you manage your space so you do not have to redraw the graph over and over again. E(rp) " Op (a) (2 points) Indicate the location of the efficient portfolios that are combinations of the risky assets only (excluding the risk-free treasuries). (b) (3 points) On the set of risky asset efficient portfolios, indicate a representative portfolio that would be chosen by a very risk averse investor and a representa- tive portfolio that would be chosen by a risk tolerant investor. Again, assume that investing in risk-free treasuries is impossible. (c) (2 points) Sketch the set of efficient portfolios that are combinations of risky assets and the risk-free treasuries. (d) (3 points) On this set of efficient portfolios, indicate a representative portfo- lio that would be chosen by a very risk averse investor and a representative portfolio that would be chosen by a risk tolerant investor. (e) (6 points) Using your answers to the above questions, explain the mutual fund separation theorem.

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a Efficient portfolios that are combinations of risky assets only excluding the riskfree treasuries can be located on the efficient frontier The efficient frontier represents the set of portfolios tha... View the full answer