4) [10] Consider a world with one risk-free asset and a large number of risky assets,...

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4) [10] Consider a world with one risk-free asset and a large number of risky assets, none of which are perfectly correlated (positively or negatively) with each other. a) On the graph below, draw in the efficient portfolio frontier: E(rp) Op b) On the graph above, draw in the risk free rate and label it rf. Also draw in the capital market line denoting the collection of efficient portfolios that can be constructed between the risk free asset and the market portfolio. c) On the graph above, label the standard deviation (OM) and expected return (m) for the market portfolio. d) On the graph above, draw in the indifference curve of an investor with mean-variance expected utility who maximizes his utility putting 40% of his wealth in the risk free asset and 60% of his wealth in the market portfolio. Label this indifference curve U60. e) On the graph above, draw in the indifference curve of an investor with mean-variance expected utility who maximizes his utility by putting 120% of his wealth in the market portfolio. Label this indifference curve U120. f) Explain how an investor could put 120% of his wealth in the market portfolio. 4) [10] Consider a world with one risk-free asset and a large number of risky assets, none of which are perfectly correlated (positively or negatively) with each other. a) On the graph below, draw in the efficient portfolio frontier: E(rp) Op b) On the graph above, draw in the risk free rate and label it rf. Also draw in the capital market line denoting the collection of efficient portfolios that can be constructed between the risk free asset and the market portfolio. c) On the graph above, label the standard deviation (OM) and expected return (m) for the market portfolio. d) On the graph above, draw in the indifference curve of an investor with mean-variance expected utility who maximizes his utility putting 40% of his wealth in the risk free asset and 60% of his wealth in the market portfolio. Label this indifference curve U60. e) On the graph above, draw in the indifference curve of an investor with mean-variance expected utility who maximizes his utility by putting 120% of his wealth in the market portfolio. Label this indifference curve U120. f) Explain how an investor could put 120% of his wealth in the market portfolio. 4) [10] Consider a world with one risk-free asset and a large number of risky assets, none of which are perfectly correlated (positively or negatively) with each other. a) On the graph below, draw in the efficient portfolio frontier: E(rp) Op b) On the graph above, draw in the risk free rate and label it rf. Also draw in the capital market line denoting the collection of efficient portfolios that can be constructed between the risk free asset and the market portfolio. c) On the graph above, label the standard deviation (OM) and expected return (m) for the market portfolio. d) On the graph above, draw in the indifference curve of an investor with mean-variance expected utility who maximizes his utility putting 40% of his wealth in the risk free asset and 60% of his wealth in the market portfolio. Label this indifference curve U60. e) On the graph above, draw in the indifference curve of an investor with mean-variance expected utility who maximizes his utility by putting 120% of his wealth in the market portfolio. Label this indifference curve U120. f) Explain how an investor could put 120% of his wealth in the market portfolio.

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a On the graph the efficient portfolio frontier represents the set of portfolios that offer the high... View the full answer