When Borrowing and Lending at a Risk-Free Rate Are Allowed,which

question 56

Multiple Choice

When borrowing and lending at a risk-free rate are allowed,which Capital Allocation Line (CAL) should the investor choose to combine with the efficient frontier?
I.with the highest reward-to-variability ratio.
II.that will maximize his utility.
III.with the steepest slope.
IV.with the lowest slope.

• A) I and III
• B) I and IV
• C) II and IV
• D) I only
• E) I,II,and III

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Definitions:

Financial Account

Refers to a component of a country's balance of payments that records investments and financial transactions, including investments in foreign securities and direct investments.

Capital Account

The capital account records the exchanges of financial assets and liabilities between a country and the rest of the world, including direct investment and loans.

Current Account

A component of a country's balance of payments that includes transactions in goods, services, primary income, and secondary income flows between domestic and foreign entities.

Demand

The quantity of a good or service that consumers are willing and able to purchase at different prices.