Unformatted text preview: per unit of additional standard deviation. C) The slope of the CAL is also called the reward-to-variability ratio. D) The CAL is also called the efficient frontier of risky assets in the absence of a risk-free asset. E) Both A and D are true. Answer: D Difficulty: Moderate Rationale: The CAL consists of combinations of a risky asset and a risk-free asset whose slope is the reward-to-variability ratio; thus, all statements except d are true. 3. Given the capital allocation line, an investor's optimal portfolio is the portfolio that A) maximizes her expected profit. B) maximizes her risk. C) minimizes both her risk and return. D) maximizes her expected utility. E) none of the above. Answer: D Difficulty: Moderate Rationale: By maximizing expected utility, the investor is obtaining the best risk-return relationships possible and acceptable for her. Bodie, Investments, Sixth Edition...
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- Spring '10
- Economics, risk-free asset, capital allocation line