Which of the following statements is false regarding the investment opportunity set of two assets?
A) If the correlation is + 1, it is a straight line.
B) It graphically illustrates all possible portfolio combinations between the two assets.
C) It is a straight line if one of the assets is risk-free.
D) Assuming positive portfolio weights, it can never plot below the lowest expected return asset.
E) It is not applicable when the assets have a zero correlation.

Question

Quizplus · Accepted Answer

The investment opportunity set illustrates all possible portfolio combinations between two assets, regardless of their correlation. A zero correlation between assets does not make the investment opportunity set inapplicable; in fact, it often leads to a more diversified portfolio opportunity set.

Which of the Following Statements Is False Regarding the Investment