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4. There are three securities. B Er) | 8% 10% 9% 2 3 1 (a) Is there any security surely NOT chosen by a risk-averse

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4. There are three securities. B Er) | 8% 10% 9% 2 3 1 (a) Is there any security surely NOT chosen by a risk-averse investor? Why? Suppose the government bans the trading of security C, so the market has only two securities A and B. There are two risk-averse investors, Miss Red and Miss Gray. Miss Red is more risk-averse than Miss Gray. Denote Miss Red's optimal portfolio choice by PR WROA+ (1 - WR) B, and Miss Gray's optimal portfolio choice by PG=wg0 A+ (1 - WG) B. (b) Without risk-free assets, which one is greater, wr or wg? Why? (Hint: You don't need to calculate wr or wg to answer this question.] 2 (C) Suppose there is a risk-free asset with the rate of return rj = 6%. Both Miss Red and Miss Gray can use the risk-free asset and a risky portfolio to form a new optimal portfolio. The optimal risky portfolios for Miss Red and Miss Gray are denoted by PR and PG, respectively. Then, which one is greater, wr or wg? Why? (Hint: You don't need to calculate wr or wg to answer this question.] 4. There are three securities. B Er) | 8% 10% 9% 2 3 1 (a) Is there any security surely NOT chosen by a risk-averse investor? Why? Suppose the government bans the trading of security C, so the market has only two securities A and B. There are two risk-averse investors, Miss Red and Miss Gray. Miss Red is more risk-averse than Miss Gray. Denote Miss Red's optimal portfolio choice by PR WROA+ (1 - WR) B, and Miss Gray's optimal portfolio choice by PG=wg0 A+ (1 - WG) B. (b) Without risk-free assets, which one is greater, wr or wg? Why? (Hint: You don't need to calculate wr or wg to answer this question.] 2 (C) Suppose there is a risk-free asset with the rate of return rj = 6%. Both Miss Red and Miss Gray can use the risk-free asset and a risky portfolio to form a new optimal portfolio. The optimal risky portfolios for Miss Red and Miss Gray are denoted by PR and PG, respectively. Then, which one is greater, wr or wg? Why? (Hint: You don't need to calculate wr or wg to answer this question.]

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