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.

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Definitions:

Mean

The arithmetic average of a set of values or quantities, calculated by adding them together and dividing by the number of terms in the set.

Median

The middle value in a data set, which divides the data into two halves, or the value that has an equal number of data points above and below it.

Mode

The data point that is most frequently encountered in a set of data.

Raw Data

Untreated and unprocessed data collected directly from a source, prior to undergoing any form of analysis or manipulation.