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

Question

Kyle Hancock

Social Studies

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

+2

Answers (2)

Know the Answer?

Caleb Tate · Answer 1

B and C

Borrow some money at risk free rate and invest in the optimal risky portfolio AND Invest only in risky securities.

Kaylynn Marquez · Answer 2

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.