286 THE HANDBOOK OF PORTFOLIO MATHEMATICS
geometric optimal portfolio when the RFR is greater than zero? Yes, this
is easily accomplished by subtracting the RFR from the expected returns
of each of the components, but not from NIC (i.e., the expected return for
NIC remains at zero, or an arithmetic average HPR of 1.00). Now, solving
the matrix will yield the unconstrained geometric optimal portfolio when
the RFR is greater than zero.
Since the unconstrained efficient frontier is the same portfolio at dif-
ferent levels of leverage, you cannot put a CML line on the unconstrained
efficient frontier. You can only put CML lines on the AHPR or GHPR efficient
frontiers if they are constrained (i.e., if the sum of the weights equals 1). It is
not logical to put CML lines on the AHPR or GHPR unconstrained efficient
frontiers.