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26 July, 11:24

An investor who wishes to form a portfolio that lies to the right of the optimal risky portfolio on the Capital Allocation Line must:

A. lend some of her money at the risk-free rate and invest the remainder in the optimal risky portfolio.

B. borrow some money at the risk-free rate and invest in the optimal risky portfolio.

C. invest only in risky securities.

D. such a portfolio cannot be formed.

E. B and C

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Answers (2)
  1. 26 July, 11:40
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    B and C

    Borrow some money at risk free rate and invest in the optimal risky portfolio AND Invest only in risky securities.
  2. 26 July, 11:46
    0
    E. B and C

    Explanation:

    An investor who has an aim of forming a portfolio that lies to the right of the optimal risky portfolio on the capital allocation line must do so by borrowing some money at the risk-free rate and then investing this borrowed money in the optimal risky portfolio. By doing so, the investor must also be willing to invest in risky securities.
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