Consider the economy that risk-free lending and borrowing are allowed but risk-free borrowing rate is higher that risk-free lending rate. “In this economy, all investors have the same optimal risky portfolio.” Do you agree with the latter sentence?
Added by James G.
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In this economy, the risk-free borrowing rate being higher than the risk-free lending rate suggests that investors face a cost when borrowing funds. This creates a situation where the cost of leveraging investments is higher than the return from risk-free lending. Show more…
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