what happens to the optimal risky portfolio compisition if stocks and bonds as the risk-free rate increases? what is the intuition for why this is happening?

EMBA Investments... Section 4-Mean-Variance Optimization MBA-792: Investments This is an individual (not group) exercise with two parts. In the first part, you will play with a very simple meanvariance optimizer with just 2 risky assets to gain intuition for how mean-variance portfolio optimization works. In the second part of the assignment you will do optimization with a larger (more realistic) set of possible assets and understand more of the practical applications (and limitations) of the model. Part 1. Portfolio Optimization with just stocks, bonds, and a risk-free asset Open the spreadsheet "Portfolio Optimizer 2-asset." This is a simple portfolio model with just two risky assets that we will assume are diversified mutual funds (or ETFs) for stocks and bonds. I have set the default input values (highlighted in yellow) to values close to the long-run historical values we calculated in Data Exercise 1. The optimal portfolio weights with these assumptions are then calculated and the inputs and outputs are plotted in the graph. The optimal portfolio weights for bonds and stocks as well as the optimal portfolio expected return and standard deviation are shaded in gray. Specifically: (1) Change the risk-free rate up and down some (try values ranging from 2%4% in increments of 0.5% ). 4. What happens to the optimal risky portfolio composition of stocks and bonds as the risk-free rate increases? As the risk-free fate increases. the optimal portfolio shifts higher along the CAL. towards stocks, to incorponate a heavier percentage of stocks in the composition to yield a bigher return for the risk, being taken. - What's the intuition for why this is happening? As the risk-free rate increases, you'll take on more risk to optimize the portfolio to achieve the expected risk premium of your portfolio. The portfolio to bold in combination with the tiskfree rate is the tangency portfolio because it has the bighest slone. With a higher risk-free EMBA Investments... Section 4-Mean-Variance Optimization MBA-792: Investments This is an individual (not group) exercise with two parts. In the first part, you will play with a very simple meanvariance optimizer with just 2 risky assets to gain intuition for how mean-variance portfolio optimization works. In the second part of the assignment you will do optimization with a larger (more realistic) set of possible assets and understand more of the practical applications (and limitations) of the model. Part 1. Portfolio Optimization with just stocks, bonds, and a risk-free asset Open the spreadsheet "Portfolio Optimizer 2-asset." This is a simple portfolio model with just two risky assets that we will assume are diversified mutual funds (or ETFs) for stocks and bonds. I have set the default input values (highlighted in yellow) to values close to the long-run historical values we calculated in Data Exercise 1. The optimal portfolio weights with these assumptions are then calculated and the inputs and outputs are plotted in the graph. The optimal portfolio weights for bonds and stocks as well as the optimal portfolio expected return and standard deviation are shaded in gray. Specifically: (1) Change the risk-free rate up and down some (try values ranging from 2%4% in increments of 0.5% ). 4. What happens to the optimal risky portfolio composition of stocks and bonds as the risk-free rate increases? As the risk-free fate increases. the optimal portfolio shifts higher along the CAL. towards stocks, to incorponate a heavier percentage of stocks in the composition to yield a bigher return for the risk, being taken. - What's the intuition for why this is happening? As the risk-free rate increases, you'll take on more risk to optimize the portfolio to achieve the expected risk premium of your portfolio. The portfolio to bold in combination with the tiskfree rate is the tangency portfolio because it has the bighest slone. With a higher risk-free