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HPT 6 Suppose that the borrowing rate, f B = 9 % is greater than the lending rate, f = 7 % . Show graphically

HPT 6 Suppose that the borrowing rate, fB=9% is greater than the lending rate, f=7%. Show graphically how the optimal
ortfolio choice of some investors will be affected by the higher borrowing rate. Which investors will not be affected by the
rrowing rate? -All investors whose degree of risk aversion is such that they would hold the risky portfolio in a proportion
fual to 100% or less (y1.00) are lending rather than borrowing, and so are unaffected by the borrowing rate. The least
sk-averse of these investors hold 100% in the risky portfolio (y=1). We can solve for the degree of risk aversion of these
:ut off" investors So solve y=1=E(Rp)-rfA** variance p) from the parameters of the investment opportunities: /////
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