In the investor's choice problem, the intercept of the budget line corresponds to:

Question

Quizplus · Accepted Answer

The intercept of the budget line corresponds to the return on the risk-free asset, as this represents the expected return with zero standard deviation. The slope of the budget line represents the ratio of risk and return for a portfolio made up of the risk-free asset and the risky asset. Thus, the optimal portfolio will be the point on the budget line that provides the highest ratio of return to risk.

In the Investor's Choice Problem, the Intercept of the Budget