The capital allocation line can be described as the
A) investment opportunity set formed with a risky asset and a risk-free asset.
B) investment opportunity set formed with two risky assets.
C) line on which lie all portfolios that offer the same utility to a particular investor.
D) line on which lie all portfolios with the same expected rate of return and different standard deviations.

Question

Quizplus · Accepted Answer

The capital allocation line (CAL) represents the set of portfolios that optimally combine risk and return for an investor by mixing a risk-free asset with a portfolio of risky assets. It shows the best possible expected return for a given level of risk or the lowest risk for a given level of expected return.

The Capital Allocation Line Can Be Described as the