Rational risk-averse investors will always prefer portfolios ________.
A) located on the efficient frontier to those located on the capital market line
B) located on the capital market line to those located on the efficient frontier
C) at or near the minimum-variance point on the risky asset efficient frontier
D) that are risk-free to all other asset choices

Question

Quizplus · Accepted Answer

Rational risk-averse investors prefer portfolios on the capital market line because it represents portfolios that have the highest expected return for a given level of risk, according to the Capital Asset Pricing Model (CAPM). The capital market line is a tangent to the efficient frontier, indicating the best possible risk-return combination available in the market.

Rational Risk-Averse Investors Will Always Prefer Portfolios ________