The investor's optimal portfolio will include an investment in the risky portfolio and _______ at the risk free rate.

Question

Quizplus · Accepted Answer

The investor's optimal portfolio must include an investment in the risky portfolio and a risk-free asset such as T-bills at the risk-free rate. There is no need for the investor to borrow because they already have access to the risk-free asset. Therefore, the best choice is to lend at the risk-free rate.

The Investor's Optimal Portfolio Will Include an Investment in the Risky