Question: Draw a graph that represents an opportunity set for a multiple asset portfolio with N-risky assets and no risk-free asset (be sure to label everything).

  1. Draw a graph that represents an opportunity set for a multiple asset portfolio with N-risky assets and no risk-free asset (be sure to label everything). Indicate the following on the graph: (1) the minimum variance portfolio, (2) point (M) which represents the optimal portfolio, and (3) indicate the efficient frontier. Explain how the optimal portfolio is determined.

  1. If you are a risk-averse investor, are your indifference curves flatter or steeper than a risk-taker?

  1. Based on the CAPM, what risky portfolio will all investors choose? How is it possible to achieve a return higher than that portfolio?

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