Modern portfolio theory tells us that investors hold portfolios that lie on the efcient frontier and that efcient frontier portfolios change with investor's target required portfolio returns. Examine the role of real estate in optimal portfolios with different risk-return proles by answering the following two questions:

a. Explain how the optimal portfolio allocation or mix changes as we move from the more conservative to aggressive investor return expectations in a world with three major investment asset classes (stocks, bonds, and real and real estate)

b. Consider the expanded ve asset class investment universe that includes small cap stocks and REITs . Does the inclusion of REITs into the asset class mix affect the optimal allocation to private real estate? If so, how, and in your opinion, why? Does there appear to be a role for both private real estate and REITs?