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The Optimal Proportion of the Risky Asset in the Complete

question 54

Essay

The optimal proportion of the risky asset in the complete portfolio is given by the equation y* = [E(rP)- rf]/(.01A*Variance of P).For each of the variables on the right side of the equation,discuss the impact the variable's effect on y* and why the nature of the relationship makes sense intuitively.Assume the investor is risk averse.


Definitions:

Australopithecines

An early group of hominids known for walking upright and living in Africa approximately 4 to 2 million years ago, significant in human evolutionary history.

Transitional Species

Fossilized organisms that exhibit traits common to both their ancestral group and its descendants, providing evidence for evolutionary change.

Fossil Record

The collection of all known fossils and their placement in rock formations and sedimentary layers, providing evidence of the history of life on Earth.

Species Diversity

The variety and abundance of different species within a given ecological community.

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