Which of the following would NOT be a way to increase the return on equity?
A) Buy back bank stock.
B) Pay higher dividends.
C) Acquire new funds by selling negotiable CDs and increase assets with them.
D) Sell more bank stock.
D
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Give two examples of price fixing in the news
What will be an ideal response?
Consider the accompanying diagram, which shows an investor who can choose to hold the risky assets on the efficient set and/or the risk-free asset labeled R.
(i) Describe the portfolio held by this investor.
(ii) Suppose the expected return of the risk-free asset increases. Complete the diagram to show how the investor responds to this change. Describe how the market portfolio changes, and describe the new portfolio held by the investor.
(iii) Assume that as the investor's income rises, he prefers that his portfolio have a higher expected return and a lower standard deviation. When the expected return of the risk-free asset rises, does the expected return of the investor's portfolio rise or fall? Does the standard deviation of the investor's portfolio rise or fall? Explain, using substitution and income effects.