Reference - Investments

Reference Book - https://drive.google.com/file/d/1bhScoR9IpLhq_WIP16f9RRWNYr73zLdV/view?usp=sharing

Question - Diversification

The concept of diversification suggests that a portfolio's risk-return tradeoff will improve if more securities are included in the portfolio. Assume that every purchase or sale of a financial asset now requires the payment of a small transaction fee, making it infeasible for managers of small portfolios to purchase all securities available on the market.

1. (a) Will this change the optimal investment strategy for a small investor? If so, describe why and how. If not, describe why not.
2. (b)How will the investor's optimal portfolio's expected return and risk compare to the theoretically optimal portfolio in the absence of these transaction costs?