There are three securities. A B E(r) 8% 10% 9% 0 2 3 1 (a) Is there any security surely NOT chosen by a risk-averse investor? Why? Suppose the government bans the trading of security C, so the market has only two securities A and B. There are two risk-averse investors, Miss Red and Miss Gray. Miss Red is more risk-averse than Miss Gray. Denote Miss Red's optimal portfolio choice by Pr = WR0 A+ (1 WR) o B, and Miss Gray's optimal portfolio choice by PG = wg 0 A+ (1 - wg) o B. (b) Without risk-free assets, which one is greater, WR or WG? Why? (Hint: You don't need to calculate wr or wg to answer this question.] 2 = (c) Suppose there is a risk-free asset with the rate of return rf 6%. Both Miss Red and Miss Gray can use the risk-free asset and a risky portfolio to form a new optimal portfolio. The optimal risky portfolios Miss Red and Miss Gray are denoted by PR and PG, respectively. Then, which one is greater, WR or wg? Why? [Hint: You don't need to calculate wr or wg to answer this question.]