Assuming investors are rational and risk averse, an investor with access to both risky assets and...

Assuming investors are rational and risk averse, an investor with access to both risky assets and a risk-free asset would hold a portfolio at the point of tangency between their indifference curve and the:

security market line

capital market line

feasible set

efficient frontier

Solutions

Expert Solution

The correct answer is Capital Market Line

The Capital Market line is the line which depicts all the portolfios from riskk free to risky assets according to their return, the slope of this line is the sharpe ratio and if the sharpe ratio is above the line then it is an indicator to buy the asset and if it less than the line, asset should be sold. The investor would hold the portfolio when the sharpe ratio is tangent to the Indiffernce curve and the CML line.

jeff jeffy answered 2 years ago

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