Which of the following statement(s)is(are)true regarding the selection of a portfolio from those that lie on the Capital Allocation Line?
A) Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors.
B) More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors.
C) Investors choose the portfolio that maximizes their expected utility.
D) a and c.
E) b and c.

Question

Quizplus · Accepted Answer

More risk-averse investors will prefer portfolios that have lower risk and higher returns, so they will invest more in the risk-free asset and less in the optimal risky portfolio. On the other hand, less risk-averse investors will allocate more funds to the optimal risky portfolio and less to the risk-free asset. Both types of investors will choose the portfolio that maximizes their expected utility, which depends on their preferences and risk tolerance. Therefore, statements b and c are true, and statement a is false because it describes the opposite behavior.

Which of the Following Statement(s)is(are)true Regarding the Selection of a Portfolio