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An individual has $100,000 to invest. He can buy a risk free asset that will pay 3% or he can invest in a stock that

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An individual has $100,000 to invest. He can buy a risk free asset that will pay 3% or he can invest in a stock that has a 0.4 chance of paying 15%, a 0.3 chance of paying 10%, and a 0.3 chance of providing a 0% return. Suppose that his marginal utility of portfolio risk is MU0p- 40pand her marginal utility of return on portfolio is MUp 2Rp Optimal level of return on portfolio = 5.57 And Optimal level of portfolio risk = 2.67 Now suppose the return on a risk free asset has increased to 5%. New optimal level of return on portfolio = 6.29 and new optimal level of portfolio risk = 2.01 Question: Sketch a diagram associated with individual's investment decision. On the diagram show the old and new optimal levels of return on portfolio and its risk

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