Telser Criteria

With riskless lending and borrowing, employing Telser's criteria leads to three possible solutions:

1. The optimum occurs at the intersection of the constraint with the lending and borrowing line.

1. The optimum occurs at infinite borrowing.

3. There is no portfolio that meets the constraint and thus no feasible solution.

Figure 11.14 shows the situation where the optimum is the intersection of the constraint with the lending and borrowing line. Figure 11.15 shows the situation where the optimum is infinite borrowing. The case where there was no feasible solution was demonstrated in

Figure 11.14 Investment alternatives where a mixed policy is optimum.

Figure 11.4. The same analysis would follow with lending and borrowing at a riskless rate of interest. Once again, the optimum depends on the slope of the lending-borrowing line and the constraint.

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