Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 3, Problem 7MC

Write out the equation for the Capital Market Line (CML), and draw it on the graph. Interpret the plotted CML. Now add a set of indifference curves and illustrate how an investor’s optimal portfolio is some combination of the risky portfolio and the risk-free asset. What is the composition of the risky portfolio?

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Consider the following graph.   According to Markowitz’ portfolio theory, which point on the graph represents optimal portfolio?       C     A     B     D
Define the following terms, using graphs or equations to illustrate youranswers wherever feasible: b. Indifference curve; optimal portfolio
Write the formula for the portfolio return and risk Write the formula for expected returns and risk.
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