The Efficient Frontier With Riskless Lending And Borrowing

Up to this point we have been dealing with portfolios of risky assets. The introduction of a riskless asset into our portfolio possibility set considerably simplifies the analysis. We can consider lending at a riskless rate as investing in an asset with a certain outcome e.g., 33Mer on 19 has shown that the efficient set is the upper half of a hyperbola. Figure 5.12 The efficient set when short sales are allowed. a short-term government bill or savings account . Borrowing can be considered as...