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 
and co-ownership of the business, which has a rate of return of 
and a level of risk of 
. Donna's marginal rate of substitution of return for risk 
where 
is Donna's portfolio rate of return and σP is her optimal portfolio risk. Donna's budget constraint is given by 
Solve for Donna's optimal portfolio rate of return and risk as a function of 
, 
and 
. 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
Definitions:
Positive Emotionality
A personality trait that involves the tendency to experience positive emotions, such as happiness and joy, more frequently and intensely.
Eysenck's Model
A psychological theory proposing that personality is determined by the dimensions of extraversion-introversion, neuroticism-stability, and psychoticism-superego function.
Extraversion
A personality trait characterized by outgoingness, sociability, and a high level of engagement with the external world.
Tellegen
A psychologist well-known for his work on personality structure, including the development of the Multidimensional Personality Questionnaire (MPQ).
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