The presence of a risk-free asset enables the investor to:
I.invest in the market portfolio;
II.find an interior portfolio using quadratic programming;
III.borrow or lend at the risk-free rate;
IV.form portfolios having greater Sharpe ratios
A)I and II only
B)I and III only
C)III and IV only
D)IV only

Question

Quizplus · Accepted Answer

The presence of a risk-free asset allows investors to borrow or lend at the risk-free rate (III) and form portfolios with greater Sharpe ratios (IV) by combining the risk-free asset with the market portfolio.

The Presence of a Risk-Free Asset Enables the Investor To