Quick Finance Tip – Two fund Separation Theorem And The Investment and Finance Decision

​Two fund Separation Theorem allow us to divide an investor’s “investment” and “finance” decision problems. The investment decision refers to where the investor identifies the optimal risky portfolio. The financing decision refers to where the optimal portfolio from the Capital Allocation Line is determined by considering investor’s risk preference, indifference curves, and allocation to the risk-free asset and optimal risky portfolio.