Hi, Can you please explain why would he lend at the risk free rate instead of investing some funds in the risk free asset and some in the market portfolio?

Thanks

c) Ian's risk comparisons are based on the standard deviation of returns, which is incorrect. The correct comparisons should be based on the systematic risk of these assets and the portfolio. From a diversified investor's perspective he should invest in the market portfolio and then either borrow or lend funds to match his risk preference. Since Ian's quite risk averse he should invest some funds in the market portfolio and lend the rest at the riskfree rate