The potential combinations of a riskfree lending with a risky portfolio results in a plot of expected returns and standard deviations of

Question

Quizplus · Accepted Answer

The combination of a risk-free asset and a risky portfolio results in a straight line with a positive slope on a plot of expected returns against standard deviations. This line starts from the risk-free rate (with zero standard deviation) and extends upwards, reflecting the increasing expected return for higher levels of risk assumed by allocating more into the risky portfolio.

The Potential Combinations of a Riskfree Lending with a Risky