Consider the Production Possibilities Frontier Displayed in the Figure Shown

question 28

Multiple Choice

Consider the production possibilities frontier displayed in the figure shown. A society faced with this curve currently:

• A)cannot obtain point II.
• B)can only obtain point III.
• C)can only obtain point IV or point I.
• D)cannot obtain point III.

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Definitions:

Market Portfolio

A hypothetical collection of all market assets, each proportioned by its market value.

Betas

An evaluation measure for the volatility or inherent risk present in a security or portfolio in comparison to the total market.

Treynor Measure

A performance metric for determining how well an investment compensates the investor for taking risk, calculated as the excess return over the risk-free rate relative to the beta of the portfolio.