and even the highest reward-to-variability ratio, the weight of U.S. stocks is generally higher in both restricted and unrestricted portfolios. This is due to the lower correlation of U.S. stocks with stocks of other countries, and illustrates the importance of diversification attributes when forming efficient portfolios. Figure 8.13 presents points corresponding to means and standard deviations of individual country indexes, as well as the equally weighted port- folio. The figure clearly shows the benefits from diversification. A spreadsheet model featuring Optimal Portfolios is available on the Online Learning Center at www.mhhe.com/bkm. It contains a template that is similar to the template devel- oped in this section. The model can be used to find optimal mixes of securities for targeted levels of returns for both restricted and unrestricted portfolios. Graphs of the efficient fron- tier are generated for each set of inputs. Additional practice problems using this spreadsheet are also available.     Capital Allocation and the Separation Property   Now that we have the efficient frontier, we proceed to step two and introduce the risk- free asset. Figure 8.14 shows the efficient frontier plus three CALs representing various II. Portfolio Theory 8. Optimal Risky Portfolio The McGraw−Hill Companies, 2001           234 PART II Portfolio Theory     Figure 8.14 Capital allocation lines with various portfolios from the efficient set.     E (r)     CAL(P)   Efficient frontier of risky assets   CAL(A)       P