how did they get 0.166? f. i. The existence of riskless asset allows the investor to invest

how did they get 0.166?

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f. i. The existence of riskless asset allows the investor to invest more than his net worth (initial investment) in risky stocks. Graphically we move to a new efficient frontier located on the new straight line between R and M. This is indicated by higher indifference curve. The portfolio choices at that level become characterized by the various combinations of risk free asset and the portfolio of risky assets "M". ii. .22 = y .166+ (1-y) .1 y = 1.82 Borrow 82% of the initial wealth to invest in M. On other words, we borrow $164,000 to invest 364,000 in M. f. i. The existence of riskless asset allows the investor to invest more than his net worth (initial investment) in risky stocks. Graphically we move to a new efficient frontier located on the new straight line between R and M. This is indicated by higher indifference curve. The portfolio choices at that level become characterized by the various combinations of risk free asset and the portfolio of risky assets "M". ii. .22 = y .166+ (1-y) .1 y = 1.82 Borrow 82% of the initial wealth to invest in M. On other words, we borrow $164,000 to invest 364,000 in M.

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The number 0166 arises from the formula used to calculate the proportion of the investors wealth y t... View the full answer