You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to
A) 0.325.
B) 0.675.
C) 0.912.
D) 0.407.
E) Cannot be determined.

Question

Quizplus · Accepted Answer

The slope of the capital allocation line (CAL) is calculated as the difference between the expected return of the risky asset and the risk-free rate, divided by the standard deviation of the risky asset: (0.17 - 0.04) / 0.40 = 0.325.

You Invest $1,000 in a Risky Asset with an Expected