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Satsume Satsume
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6 years ago
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
Textbook 
Microeconomics

Microeconomics


Edition: 8th
Author:
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boransalboransal
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6 years ago
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Satsume Author
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6 years ago
Smart ... Thanks!
elizabetheldrid
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Yesterday
This helped my grade so much Perfect
Natalie Price
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2 hours ago
You make an excellent tutor!
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