Question

Running Money (Finance)

1. Financial advisors generally recommend that their clients allocate more to higher

risk–return asset classes (like equities) if their investment horizons are long.

a. Is this advice consistent with the basic M–V model?

b. Does adding a shortfall constraint to the M–V model make a difference? If so,

how? If not, why not?

c. Assuming investment opportunities change over time, what type of asset return

behavior would justify this advice within the M–V framework?


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