Risk-free rate for is 5%. Return on risky portfolio is 12%. Investor has $40,000 and...
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Risk-free rate for is 5%.
Return on risky portfolio is 12%.
Investor has $40,000 and borrows additional $20,000 at 6% and invests the entire $60,000 in risky portfolio.
- Draw capital allocation line for the investor (equivalently draw the CML with different lending rate (5%) and borrowing rate (6%)) and show the approximate point where the indifference curve of investor is tangent to the CML.
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