Investors are maximizing expected return subject

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Reference no: EM132029443

Assume that investors are maximizing the expected return subject to not exceeding standard deviation they are willing to tolerate. Assume that investors can allocate their wealth across two assets. Asset 1 (e.g., bank account 1) has expected return of 1% and standard deviation of 0%. Asset 2 (e.g., bank account 2) has expected return 0.5% and standard deviation of 0%. here is no borrowing. Given that asset 1 is superior to asset 2 as it offers a higher expected return with the same standard deviation, will any investor allocate any fraction of their wealth to asset 2? Please explain the answer sufficently with details.

Reference no: EM132029443

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