Consider a two-asset model with money paying the positive given interest rate Rm and the bonds paying a return R which has the expected value b and standard deviation b. Show diagrammatically the effects of the following for the proportions held of the two assets:

i. The government imposes a tax on the excess return (R - Rm) on bonds, with a corresponding refund if the return is negative. (5)

ii. The government imposes a tax on a positive excess return (R - Rm) on bonds, but without any refund if the return is negative and if Rm= 0.