hi guys, just revising portfolio management.
Schweser says that if an investor can’t borrow at risk free rate, the CAL ends at the point of tangency and the investor should then switch to the portfolios on the curved bit of the efficient frontier.
I am sure I can remember from level 1, graphs of what happens if an investor can’t borrow at the risk free rate, and they just showed the slope of the upper part getting flatter after the tangency point. (because the investor was paying more to borrow, eating away at the returns). They definitely didn’t show the upper part becoming curved and they didn’t imply that the investor should hold a different optimum portfolio. (Which seems to be the implication from the advice to switch to the curved part of the efficient frontier.)
Does anyone have any thoughts on this?