If everyone holds the same tangency portfolio, how do curved indifference curves decide where on the line each investor should sit?
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Building your own indifference curve in a static theory
State that the theory compares today with next period only, then raise volatility from 6% to 8% at 1.4% monthly and record the linear answer, steeper answers, and the late-2008 T-bill evidence.
Convex indifference curves and the optimal point on the line
State that diminishing marginal utility makes the curves upward-sloping and convex, sketch a family of curves on the tangency line, and mark where a more and a less risk-averse investor each sit.
The four conclusions of portfolio theory
List all four: diversification reduces risk, covariances matter more than individual variances (recalled from the previous unit), hold the efficient frontier, and with a riskless asset hold the tangency portfolio plus borrowing or lending.
The framework's assumptions and the origin of benchmarking
Record two assumptions, standard deviation as the full measure of risk and parameters taken as given, and record that indexation and benchmarking grew from this framework, with the tangency portfolio becoming the benchmark.