Suppose that you can invest risk-free at rate rf but can borrow only at a higher rate, . This case was considered in Chapter 8, Section 8.6. a. Draw a minimum-variance frontier. Show on the graph the risky portfolio that will be selected by defensive investors. Show the portfolio that will be selected by risk tolerant investors. b. What portfolios will be selected by investors who neither borrow nor lend? c. Where will the market portfolio lie on the efficient frontier? d. Will the zero-beta CAPM be valid in this scenario? Explain. Show graphically the expected return on the zero-beta portfolio. 19. Consider an economy with two classes of investors. Tax-exempt investors can borrow or lend at the safe rate, rf . Taxed investors pay tax rate t on all interest income, so their net-of-tax safe interest rate is rf(1 t). Show that the zero-beta CAPM will apply to this economy and that (1 t)rf E[rZ(M)] r