Given an optimal risky portfolio with expected return of 12%, standard deviation of 26%, and a risk free rate of 3%, what is the slope of the best feasible CAL?

Question

Quizplus · Accepted Answer

The slope of the best feasible CAL (Capital Allocation Line) is given by the Sharpe ratio, which is calculated as the excess return of the portfolio over the risk free rate divided by the portfolio standard deviation.

Sharpe Ratio = (Expected portfolio return - Risk free rate) / Portfolio standard deviation

Sharpe Ratio = (12% - 3%) / 26% = 0.346

Therefore, the slope of the best feasible CAL is 0.346, which rounds to 0.35. The correct answer is D.

Given an Optimal Risky Portfolio with Expected Return of 12