(a) Suppose all the Capital Asset Pricing Model (CAPM) assumptions hold. If you would like to earn a risk premium that is three times the market risk premium, what should you do?

(b) Unlike part (a), suppose we cannot invest more than 200% in any risky assets. Suppose all the other CAPM assumptions still hold. If you would like to earn a risk premium that is the same as part (a), what should you do now? Briefly explain using the graph below. (No calculations necessary.)

(c) Consider the portfolio you invest in part (b), should your portfolio contain mostly high-beta securities, or should your portfolio be very similar to the market portfolio? Briefly explain.

CAL P2 CERERE Efficient Frontier p*