Risk-averse investors choose to hold only two assets: a risk-free asset and a market portfolio.

Question

Quizplus · Accepted Answer

This statement is true in the context of the Capital Asset Pricing Model (CAPM) which assumes that investors are risk-averse and choose to hold a combination of a risk-free asset (such as government bonds) and a market portfolio (such as a diversified stock index fund). This combination is known as the "optimal portfolio" which offers the highest expected return for a given level of risk.

Risk-Averse Investors Choose to Hold Only Two Assets: a Risk-Free