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Title: Donna is considering the option of becoming a co-owner in a business. Her investment choices are to ... Post by: Satsume on Oct 24, 2017 Donna is considering the option of becoming a co-owner in a business. Her investment choices are to hold a risk free asset that has a return of Rj and co-ownership of the business, which has a rate of return of Rb and a level of risk of σb. Donna's marginal rate of substitution of return for risk
( / ) is = where RP is Donna's portfolio rate of return and σP is her optimal portfolio risk. Donna's budget constraint is given by RP = Rj + σP. Solve for Donna's optimal portfolio rate of return and risk as a function of Rj, Rb and σb. Suppose the table below lists the relevant rates of returns and risks. Use this table to determine Donna's optimal rate or return and risk. Investment Rate of Return Risk Risk Free 0.06 0 Business 0.25 0.39 Title: Re: Donna is considering the option of becoming a co-owner in a business. Her investment choices ... Post by: boransal on Oct 24, 2017 Content hidden
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