Assume you have two risky assets A & B. Asset A has high risk and high expected return; B has low risk and low expected return. The correlation between these two assets is small (assumed to be zero). Your client is a risk-averse investor (A > 0). Show these two assets on a return vs. risk graph; draw a hypothetical efficient frontier connecting the two points; draw the Capital Allocation Line and an indifference curve that shows a possible optimal complete portfolio. No values are needed on the graph. Label the following:

Assets A & B

Opportunity set of risky assets

Optimal Risky Portfolio

Indifference Curve

CAL

Optimal Complete Portfolio (based on investors utility function)