Consider a simple financial market where only two firms are traded, say firm A and firm B, with capitalization given by $200 mil and $300 mil. Consider two investors, investor 1 and 2, with total wealth $100, each. Investor 1 decides to deposit $40 of his wealth in the risk free asset. Investor 2 decides instead to invest $60 in the risk-free asset. According to the Two Funds Separation theorem, how much each investor should invest in shares of firm A and shares of firm B?

Consider a simple financial market where only two firms are traded, say firm A and firm B, with capitalization given by $200 mil and $300 mil. Consider two investors, investor 1 and 2, with total wealth $100, each. Investor 1 decides to deposit $40 of his wealth in the risk free asset. Investor 2 decides instead to invest $60 in the risk-free asset. According to the Two Funds Separation theorem, how much each investor should invest in shares of firm A and shares of firm B?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: The Basic Tools Of Finance

Section: Chapter Questions

Problem 6CQQ

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