The Combination of the Efficient Set of Portfolios with a Riskless

question 26

Multiple Choice

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in:

• A)the capital market line which shows that all investors will only invest in the riskless asset.
• B)the capital market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.
• C)the security market line which shows that all investors will invest in the riskless asset only.
• D)the security market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.
• E)None of the above.

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Definitions:

Assets

Economic resources owned or controlled by an individual or entity, expected to produce future benefits.

Default

The failure to fulfill a financial obligation, such as not making the required payments on a loan.

Credit

The trust which allows one party to provide resources to another party wherein the second party does not reimburse the first party immediately but promises either to repay or return those resources at a later date.

Delinquency Letter

A notification sent by a lender to the borrower indicating a missed payment and the start of delinquency.