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  3. i figure 6.14 one-fund theorem. when both borrowin

i FIGURE 6.14 One-fund theorem. When both borrowing and lending at the risk-free rate are...

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i FIGURE 6.14 One-fund theorem. When both borrowing and lending at the risk-free rate are allowed, there is a unique fund F of risky assets that is efficient. All points on the efficient frontier are combinations of F and the risk-free asset. F ri Suppose there are only two risky assets in the market with expected rates of return, variances, and covariance as follows: ri= 0.10 0.20 .72 c = 0.04 o = 0.09 01,2 = 0.03 The current annual risk-free rate rf = 0.05. Find the weights wi and w, for the one fund F for this market, assuming market equilibrium and the CAPM holds. O w1=1/4 and w2=3/4 w1=1/2 and w2=1/2 w1=1/8 and w2=7/8 Ow1=1 and w2=0 O w1=0 and w2=1 w1=0 and w2=5/3 w1=7/8 and w2=1/8 O w1=3/4 and w2=1/4

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