Question

A portfolio to the right of the market portfolio on the CML is ___________.  

		a lending portfolio
		a borrowing portfolio
		an inefficient portfolio
		not possible
		none of the above

Which of the following statements about CML and SML is FALSE?

		Securities that plot on the SML have no value to investors.
		Securities that plot above the SML are undervalued.
		Investors expect to be compensated for systematic risk.
		The market Sharpe Ratio is the CML slope.
		None of the above

Which of the following portfolios most likely fall below the efficient frontier? The risk-free rate is 5%.

Portfolio	Expected returns		Expected standard deviation
A	7%		12%
B	8%		16%
C	11%		15%
D	13%		28%
		A
		B
		C
		D
		Not enough information

Answer 1

1.A portfolio to the right of the market portfolio on the CML is Borrowing Portfolio

Portfolios which lie to the right of the market portfolio on the capital market line are created to own more than 100% of market portfolio and hence created by borrowing funds known as Borrowing Portfolio.

2.Which of the following statements about CML and SML is FALSE?

Ans.Securities that plot on the SML have no value to investors.

This statement is false as Securities that fall on the SML are properly priced and have value to an investor as they still earn a return on it.

3.Which of the following portfolios most likely fall below the efficient frontier? The risk-free rate is 5%

Portfolio B is most likely fall below the efficient frontier.

Explanation: Portfolio B is inefficient as if we compare it with Portfolio A the risk is much less than B and it will give almost similar return with less risk and also in comparison with Portfolio C, C will provide higher return with less risk .

Also Portfolio D is not that efficient as its risk is higher but with it, it will provide higher return also.