a) First, ignore the fact that rrf depends on whether you are long or short the risk-free asset. Suppose Trf = 2%. Solve for the tangency portfolio. b) Again, ignore the fact that rrf depends on whether you are long or short the risk-free asset. Suppose Trf = 9%. Solve for the tangency portfolio. c) Now, for parts c) to f) of the questions, let's take into account that rrf depends on whether you are long or short the risk-free asset. Draw out the shape of the efficient frontier. (Hint: think about what (E, o) pairs you can achieve via investing positive amounts in the risk-free asset, and investing negative amounts in the risk-free asset (borrowing). You will use your answers to parts A. and B.). The drawing does not need to be to scale, but needs to illustrate correctly the shape of the efficient frontier.
a) First, ignore the fact that rrf depends on whether you are long or short the risk-free asset. Suppose Trf = 2%. Solve for the tangency portfolio. b) Again, ignore the fact that rrf depends on whether you are long or short the risk-free asset. Suppose Trf = 9%. Solve for the tangency portfolio. c) Now, for parts c) to f) of the questions, let's take into account that rrf depends on whether you are long or short the risk-free asset. Draw out the shape of the efficient frontier. (Hint: think about what (E, o) pairs you can achieve via investing positive amounts in the risk-free asset, and investing negative amounts in the risk-free asset (borrowing). You will use your answers to parts A. and B.). The drawing does not need to be to scale, but needs to illustrate correctly the shape of the efficient frontier.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 13QTD
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