By combining the risk-free asset and the efficient frontier, the _____________ will be created.
A)capital market line
B)efficient frontier
C)security market line
D)attainable set

Question

Quizplus · Accepted Answer

By combining the risk-free asset and the efficient frontier, we can create a new line called the capital market line which represents the optimal portfolios that maximize the expected return for a given level of risk. The capital market line is a straight line that intersects with the y-axis at the risk-free rate and passes through the market portfolio, which is the point on the efficient frontier with the highest Sharpe ratio. Thus, the correct answer is choice A.

By Combining the Risk-Free Asset and the Efficient Frontier, the _____________