While you can lend at the risk-free rate but cannot borrow at that rate, your choice of a complete portfolio is
A) unaffected at all levels of risk.
B) separate from the shape of the Markowitz efficient frontier.
C) unaffected at low levels of risk but restricted at high levels of risk.
D) restricted at low levels of risk but unaffected at high levels of risk.
E) none of the above

Question

Quizplus · Accepted Answer

When you can lend at the risk-free rate but cannot borrow at that rate, your choice of a complete portfolio is unaffected at low levels of risk because you can still invest in risk-free assets or a mix of risk-free and risky assets. However, at high levels of risk, your choices become restricted because you cannot leverage your investment by borrowing at the risk-free rate to invest more in risky assets. This creates a limitation on how much risk you can take on, affecting the high-risk end of your portfolio choices.

While You Can Lend at the Risk-Free Rate but Cannot