CFA Bk3 Example 10 P. 264 Why doesn't this asset allocation use corner portfolios?

CFA bk 3 example 10 page 264.

Did I miss something in the vignette? How do I tell this one is unconstrained and we use Tbills and the tangency portfolio?

coz of two conditions:

  1. Std dev is acceptable when it is equal to 12% or less

  2. Minimize the probability of return falling below spending rate (i.e. 4%)

We always use CP4 & try to lower the std dev mixing it with risk free.

If our return objective is below the return offered by tangency portfolio…we need not worry abt borrowing or shorting constraint. To satisfy return obj, we need to invest partially in tangency portfolio & risk free.

When tangency portfolio return is less than return objective than only we may require to go short & over invest in tangency portfolio. If borrowing is constrained then we go for corner portfolio between which lies our return.

Tangency portfoli :Corner 4 meet the return as well as std dev objeective. We chose 4. But then there is a possibility to lower the std dev without lowering sharpe ratio.