The combination of the efficient set of portfolios with a riskless lending and b
ID: 2790458 • Letter: T
Question
The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in:
the capital market line which shows that all investors will only invest in the riskless asset.
the capital market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.
the security market line which shows that all investors will invest in the riskless asset only.
the security market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.
None of these.
Explanation / Answer
Explanation:
Capital Market Line is created by connecting the efficient portfolio point in efficient frontier to the risk free rate. Hence Combination of Efficient set of portfolio with risk free rate will be Capital Market Line.
Capital Market Line shows that all investor will invest in combination of risk free assets and efficient portfolio.
Answer: (B) the capital market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.