A moderately risk-averse investor has 50 percent of her portfolio invested in stocks and 50 percent in risk free Treasury bills. Show how each of the following events will affect the investors budget line and the proportion of stocks in her portfolio: a. The standard deviation of the return on the stock market increases, but the expected return on the stock market remains the same. b. The expected return on the stock market increases, but the standard deviation of the stock market remains the same. c. The return on risk-free Treasury bills increases.
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