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Capital Allocation Line
A line in investment graph that shows the risk-reward profiles of various portfolios, combining a risk-free asset with a risky portfolio to maximize returns.
Risk-free Asset
An investment with a guaranteed return and no chance of default, such as government bonds.
Risk Aversion
The preference to avoid risk, where investors require higher returns to compensate for higher risk.
Expected Returns
The average of all possible returns for an investment, weighted by the likelihood of each outcome.
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