If investors possess homogeneous expectations over all assets in the market portfolio, when riskless lending and borrowing is allowed, the market portfolio is deﬁned to:
A)be the same portfolio of risky assets chosen by all investors.
B)have the securities weighted by their market value proportions.
C)be a diversiﬁed portfolio.
D)All of the above.
E)None of the above.

Question

Quizplus · Accepted Answer

When investors have homogeneous expectations and riskless lending and borrowing is allowed, the market portfolio is defined to be the same portfolio of risky assets chosen by all investors, weighted by their market value proportions. This portfolio is also a diversified portfolio since it contains a mix of different assets. Therefore, choice D is the best answer.

If Investors Possess Homogeneous Expectations Over All Assets in the Market