ABSTRACT
The typical situation studied in Chapter 3 is illustrated in Figure 4.1. The key quantities are the implied risk free return rm, the tangency point of the CML with the efficient frontier defined by µm and the slope, R, of the CML. It is apparent from Figure 4.1 that if any single one of rm, µm or R is changed then the other two will change accordingly. It is the purpose of this chapter to determine precisely what these changes will be.
