The Point of Tangency Between the Efficient Frontier and the Capital

question 48

Multiple Choice

The point of tangency between the efficient frontier and the capital market line:

• A)is the ideal portfolio of available investments.
• B)can be calculated by using the Markowitz portfolio theory and CAPM.
• C)represents the point at which the market is in equilibrium.
• D)All of the above

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Definitions:

Modigliani And Miller Model

A financial theory stating that the market value of a company is determined by its earning power and the risk of its underlying assets, and is independent of the way it chooses to finance its investments or distribute dividends.

Capital Markets

Capital Markets are financial markets where long-term debt or equity-backed securities are bought and sold, facilitating the raising of capital.

Transaction Costs

Expenses incurred when buying or selling securities, including commissions, exchange fees, and taxes that can affect the profitability of investments.

Tax Shield

The reduction in income taxes that results from taking an allowable deduction from taxable income.