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Ms. Bloggs has total assets of $100,000 of which 25% consists of her house, and 75% is invested in riskless T-bills. The 25% allocation in
Ms. Bloggs has total assets of $100,000 of which 25% consists of her house, and 75% is invested in riskless T-bills. The 25% allocation in her house is fixed, because she does not want to sell the house. However, she is thinking of shifting some of the money she has in T-bills into a risky asset, A. Let the returns on her house be in, the returns on the risky asset A be ia, and the riskless return be r;. Suppose she puts w% into the risky asset (Let0%
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