Question: Use a diagram to help explain how expected returns and risks are traded off in portfolio choice. Include the effect of the availability of a

Use a diagram to help explain how expected returns and risks are traded off in portfolio choice. Include the effect of the availability of a risk-free asset. Briefly discuss the meaning of the curves and the equilibrium. Then

a) use your diagram to help explain how portfolio behavior changes when asset risks become more correlated,

b) illustrate on the diagram a measure for the change in the portfolio share of the risk-free asset,

c) briefly discuss the implication of this behavior for macroeconomic performance during financial crises.

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