How Does an Investor Earn More Than the Return Generated

question 3

Multiple Choice

How does an investor earn more than the return generated by the tangency portfolio and still stay on the security market line?

• A) Borrow at the risk free rate and invest in the tangency portfolio.
• B) Add high risk/return assets to the portfolio.
• C) Adjust the weight of stock in the portfolio to include more high return stocks.
• D) It cannot be done.

---

Definitions:

Cost Behavior

Refers to the way different types of production costs change when there is a change in the level of production.

Curvilinear

Describing a line or surface that is bent, curved, or continuously changing direction, and not straight or circular in the context of mathematics or physics.

Fixed Cost

Costs that do not vary with the volume of production or sales, such as rent, salaries, and insurance.

Activity Level

Pertains to the volume or quantity of work performed or services provided, often related to the operational capacity of a business or project.