The Optimal Proportion of the Risky Asset in the Complete

question 30

Essay

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

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Definitions:

Hidden Objection

A hidden objection is a reservation or concern held by a potential customer that is not openly expressed, often becoming a barrier to closing a sale.

True Objection

A genuine concern or question raised by a customer that needs to be addressed satisfactorily during a sales process.

Psychological Objection

A mental barrier or resistance rooted in personal beliefs or fears, affecting one's decision-making process.

Resistance To Spending

The hesitation or unwillingness of consumers or organizations to use funds for purchasing products or services.