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Consider a two-asset model with money paying the positive given interest rate Rm and the...

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Accounting

Consider a two-asset model with money paying the positive given interest rate Rm and the bonds paying a return R which has the expected value b and standard deviation b. Show diagrammatically the effects of the following for the proportions held of the two assets: i. The government imposes a tax on the excess return (R Rm) on bonds, with a corresponding refund if the return is negative. ii. The government imposes a tax on a positive excess return (R Rm) on bonds, but without any refund if the return is negative and if Rm= 0.

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