8.12. Questions about the Markowitz model and the CAPM. a. Explain why the efficient frontier must be concave. b. Suppose that there are N risky assets in an economy, each being the single claim to a different firm (hence, there are N firms). Then suppose that some firms go bankrupt, i.e. their single stock disappears; how is the efficient frontier altered? c. How is the efficient frontier altered if the borrowing (risk-free) rate is higher than the lending rate? Draw a picture. 21 d. Suppose you believe that the CAPM holds and you notice that an asset (call it asset A) is above the Security Market Line. How can you take advantage of this situation ? What will happen to stock A in the long run