What if one of the two corner portfolios adjacent to the required return have disallowed assets? Anybody know of guidance re: this issue? Seems like that could be a tricky way CFAI could get us. Thanks.
I think you’d need to just ignore all portfolios that include the disallowed assets and pick the two portfolios above and below the required return that didn’t include the disallowed assets.
If disallowed automatically ignore. If the required return was 6% and all portfolio except one that was yielding 11% were disallowed, it would involve a combination of lending at RFR and 11% portfolio I would assume.