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You are considering investing in Assets A and B with the following returns and standard deviations (of return): a) Suppose risk-free interest rate (rf) is

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You are considering investing in Assets A and B with the following returns and standard deviations (of return): a) Suppose risk-free interest rate (rf) is zero. Under what conditions would you, being risk-averse, consider holding both assets in your portfolio? [Hint: A complete answer would require numerical, graphical and a bit of verbal analyses.] (7 marks) b) Now suppose the risk-free rate (rr) is positive. How would that change your answer to part (a). [Hint: A simple graph with proper labeling and some simple explanations should answer the question completely.]

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