In the CFAI Asset Allocation book in the optimization subchapter (6) there are two blue box problems right next to each other (examples 9 & 10).
The first question in example 9 basically requires you to find the optimal weights between two corner portfolios.
In example 10, the question is similar, but the solution requires you to find the optimal weights between a corner portfolio and a T bill allocation.
How are you supposed to differentiate where to run the optimal weight formula, when I was doing example 10, I also did an optimization between 2 corner portfolios rather than 1 corner portfolio and tbills.
Let me know if there are specific things that are written in the question that are supposed to trigger this.
If I remember correctly (which I may not), if there is a non-negative weight constraint (not allowed to short) then you should optimize using 2 corner portfolios. If there is no constraint, then optimize using a corner portfolio and shorting T-bills.
If they give you a risk-free asset, you should use it. Recall from Level I that the CML lies above the efficient frontier (except at the tangency point).
they specifically determined in example 10 - that CP4 appears to be the Min Variance portfolio among the list of portfolios provided.
Also in the middle of the passage - they do mention in italics
So look for things that talk about - a) not reducing the Sharpe Ratio or b) working with a roy’s safety first ratio or some such constraint. (and if any of these are mentioned - use the T-Bill + approach.