The capital allocation line provided by a risk-free security and N risky securities is
A) the line that connects the risk-free rate and the global minimum-variance portfolio of the risky securities.
B) the line that connects the risk-free rate and the portfolio of the risky securities that has the highest expected return on the efficient frontier.
C) the line tangent to the efficient frontier of risky securities drawn from the risk-free rate.
D) the horizontal line drawn from the risk-free rate.

Question

Quizplus · Accepted Answer

The capital allocation line (CAL) is the line that is tangent to the efficient frontier of risky securities drawn from the risk-free rate. This line represents the combination of portfolios that optimally combine risk and return.

The Capital Allocation Line Provided by a Risk-Free Security and N