Question
Increase in Risk-Free Rate Suppose you use all risky assets to construct the efficient frontier. Now we want to have some fun by changing the
Increase in Risk-Free Rate
Suppose you use all risky assets to construct the efficient frontier. Now we want to have some fun by changing the risk-free rate. Try to draw the capital allocation line and the efficient frontier on the mean-standard deviation graph. What would happen to the optimal complete portfolio by combining the risk-free asset and the risky portfolio (a portfolio constructed using risky assets only) if the risk-free rate increases? Discuss the new complete portfolio's mean and standard deviation after the risk-free rate increases.
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