Which of the Following Statements Regarding the Capital Allocation Line

question 41

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 the complete portfolio per unit of additional standard deviation.
• C) The slope of the CAL is also called the reward-to-volatility ratio.
• D) The CAL is also called the efficient frontier of risky assets in the absence of a risk-free asset.

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Definitions:

Assumptions

Premises or beliefs taken as true without proof, often used as starting points for reasoning or calculations in various contexts.

Creative Destruction

A concept in economics which suggests that old ways of doing business are destroyed and replaced by new, more efficient methods.

Society's Scarce Resources

Resources that are limited in availability and are important for the production of goods and services, leading to allocation decisions.

New Products

Items that represent significant innovations or improvements over existing products, introduced into the market.