The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in:
A)the capital market line which shows that all investors will only invest in the riskless asset.
B)the capital market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.
C)the security market line which shows that all investors will invest in the riskless asset only.
D)the security market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.
E)None of the above.

Question

Quizplus · Accepted Answer

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in the capital market line, which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio. This is because the tangency portfolio is the portfolio that is most efficient in terms of risk and return, and by combining it with the riskless asset, investors can achieve a portfolio with any desired level of risk and return along the capital market line.

The Combination of the Efficient Set of Portfolios with a Riskless