Question: H5. 5. CAPM can trace its development from the insight which shows that the process of optimizing the return/risk ratio will ensure that every investor

H5.

H5. 5. CAPM can trace its development from the
5. CAPM can trace its development from the insight which shows that the process of optimizing the return/risk ratio will ensure that every investor will invest in a portfolio of risk free asset and the risky market portfolio (also known as the two fund separation theorem). Explain and illustrate with a graph why no one will invest in other risky portfolios other than the market portfolio. Why would every tradable asset in the market be included in this market portfolio? (No more than 4 pages)

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