Which of the Following Statements Regarding the Capital Allocation Line

question 1

Multiple Choice

Which of the following statements regarding the Capital Allocation Line (CAL) is false?

• A) The CAL shows risk-return combinations.
• B) The slope of the CAL equals the increase in the expected return of a risky portfolio per unit of additional standard deviation.
• C) The slope of the CAL is also called the reward-to-variability ratio.
• D) The CAL is also called the efficient frontier of risky assets in the absence of a risk-free asset.
• E) both a and d are true.

---

Definitions:

Taxes

Compulsory financial charges imposed by a government on individuals, corporations, or transactions to fund public services and government activities.

Transfer Payments

Monetary payments made by governments that do not correspond to the provision of goods or services in exchange, such as welfare benefits.

Welfare Payments

Government-provided financial assistance to individuals or families in need to support their basic life necessities.

Housing Credits

Housing credits are tax incentives or financial subsidies provided to developers or homeowners to encourage the development or purchase of affordable housing.