Take a look at the following example:
E(r) Stdev(r)
Asset Class A: 10% 18%
Asset Class B: 10% 38%
1. Can this be an “equilibrium” outcome? (Can someone please explain why cannot be an equilibrium?)
2. Holding the Stdev(r) constant, what needs to happen to make this an equilibrium outcome? (Why does Asset B need to increase and by how much?).