Suppose an Investor Equally Allocates Their Wealth Between a Risk-Free

question 138

Multiple Choice

Suppose an investor equally allocates their wealth between a risk-free asset and a risky asset. If the MRS of the current allocation is less than the slope of the budget line, then the investor should:

• A) shift more of their wealth to the risky asset.
• B) shift more of their wealth to the risk-free asset.
• C) keep the same asset allocation.
• D) We do not have enough information to answer this question.

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