Suppose an investor equally allocates their wealth between a risk-free asset and a risky asset. If the MRS of the current allocation is less than the slope of the budget line, then the investor should:
A. shift more of their wealth to the risky asset.
B. shift more of their wealth to the risk-free asset.
C. keep the same asset allocation.
D. We do not have enough information to answer this question.
Answer:A
Suppose an investor equally allocates their wealth between a risk-free asset and a risky asset. If the MRS of the current allocation is less than the slope of the budget line, then the investor should:
A. shift more of their wealth to the risky asset. B. shift more of their wealth to the risk-free asset. C. keep the same asset allocation. D. We do not have enough information to answer this question.