a. If an investors coefficient of risk aversion is A 3, how does the optimal asset
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a. If an investor’s coefficient of risk aversion is A 3, how does the optimal asset mix change? What are the new values of E ( r C ) and C ?
b. Suppose that the borrowing rate, rf B 5 9% is greater than the lending rate, r f 7%.
Show graphically how the optimal portfolio choice of some investors will be affected by the higher borrowing rate. Which investors will not be affected by the borrowing rate?
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