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Jocelyn is indifferent between investing all her wealth (which is $5 million) in the risky asset and the risk-free asset. The risky asset has an
Jocelyn is indifferent between investing all her wealth (which is $5 million) in the risky asset and the risk-free asset. The risky asset has an expected rate of return of 12% per year and a standard deviation of 20% per year. The risk-free lending rate is 6% per year. The risk-free borrowing rate is 8%. Answer the following questions.
a) What does it mean by "Jocelyn is indifferent between investing all her wealth (which is $5 million) in the risky asset and the risk-free asset."? (3 marks)
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