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Q.4 i. Explain, using diagrams as appropriate, in the context of a portfolio of two risky assets, and the ability to borrow/lend at a risk-free

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Q.4 i. Explain, using diagrams as appropriate, in the context of a portfolio of two risky assets, and the ability to borrow/lend at a risk-free rate, how the capital allocation decision can be separated from the diversification decision. Discuss briefly the implications of this separation result' for contemporary asset managers. 11

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