The risk-free rate of lending is 5%. Your friend Joe has a mean- variance utility function...

   

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The risk-free rate of lending is 5%. Your friend Joe has a mean- variance utility function with a risk aversion parameter of A = 0.4. i) (2 pts) If the risk-free rate of borrowing equals to the rate of lending. find the portfolio weight of stocks in Joe's optimal complete portfolio. ii) (4 pts) If the risk-free rate of borrowing is 7%, calculate or explain the portfolio weight of stocks in Joe's optimal complete portfolio. iii) (4 pts) In one figure, show graphically how Joe's complete portfolio is affected by the higher borrowing rate. Mark two risk-free rates, the stock portfolio, and two optimal complete portfolios: (El) in (i) and (E2) in (ii); draw the CAL lines and two indifference curves associated with (E1) and (E2), respectively. The risk-free rate of lending is 5%. Your friend Joe has a mean- variance utility function with a risk aversion parameter of A = 0.4. i) (2 pts) If the risk-free rate of borrowing equals to the rate of lending. find the portfolio weight of stocks in Joe's optimal complete portfolio. ii) (4 pts) If the risk-free rate of borrowing is 7%, calculate or explain the portfolio weight of stocks in Joe's optimal complete portfolio. iii) (4 pts) In one figure, show graphically how Joe's complete portfolio is affected by the higher borrowing rate. Mark two risk-free rates, the stock portfolio, and two optimal complete portfolios: (El) in (i) and (E2) in (ii); draw the CAL lines and two indifference curves associated with (E1) and (E2), respectively.

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