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

question 68

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) The one with the highest reward-to-variability ratio.II) The one that will maximize his utility.III) The one with the steepest slope.IV) The one with the lowest slope.

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

---

Definitions:

Compression

The process of reducing the volume of a mixture of air and fuel in an engine's cylinder before ignition, thereby increasing its potential power.

Ignition

The process of sparking combustion in an engine to initiate the engine's operation.

Supercharger

A device that increases the pressure or density of air supplied to an internal combustion engine, enhancing its power output.

Exhaust Pressure

The pressure generated by gases as they are expelled from an engine’s combustion chamber through the exhaust system.