The Separation Principle States That an Investor Will

question 56

Multiple Choice

The separation principle states that an investor will:

• A)choose between any efficient portfolio and a riskless asset to generate the desired expected return.
• B)choose a portfolio from the efficient set based on individual risk tolerance.
• C)never choose to invest in a riskless asset due to the low expected rate of return.
• D)combine a riskless asset with the tangency portfolio based on their risk tolerance level.
• E)combine a riskless asset with the minimum variance portfolio based on their risk tolerance level.

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Definitions:

Father-Son-Grandson Configuration

A hierarchical arrangement often used in genealogy, databases, or organizational structures to represent relationships.

Worksheet Process

A methodical procedure involving spreadsheets or worksheets used in planning, accounting, or financial analysis.

Consolidated Financial Statements

Financial statements that combine and present the financial position, results of operations, and cash flows of a parent and its subsidiaries as one single entity.

Excess Fair Value

The amount by which the fair value of an asset exceeds its carrying amount on the balance sheet.