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

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IL 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 r2 = 0.20 0.04 04 o = 0.09 . 01,2 = 0.03 The current annual risk-free rate rf 0.05. Find the weights wi and w2 for the one fund F for this market, assuming market equilibrium and the CAPM holds

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