Which One of These Best Describes Steps of the Separation

question 95

Multiple Choice

Which one of these best describes steps of the separation principle?

• A)Determine the beta that best fits an investor's risk tolerance level and then determine which assets can be combined to create a portfolio that matches that beta
• B)Determine the tangency point between the risk-free rate and the efficient set of risky assets and determine how to combine the tangency point portfolio with risk-free assets to match the investor's risk tolerance level
• C)Determine the appropriate beta for an individual investor and then determine the most efficient set of risky assets that falls below that beta level
• D)From a pool of assets determine which pairs of assets have the lowest covariances and then determine how to combine these pairs into a portfolio that matches the investor's preferred beta
• E)Determine an investor's risk tolerance level and then determine which portfolio rate of return best fits that level of risk tolerance

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Definitions:

Subsidies

Subsidies are financial contributions provided by the government to encourage the production or consumption of a good or service, often to support industries that are considered vital for the national economy.

Incentives

Rewards or penalties that motivate individuals to take specific actions.

Sweden

A Scandinavian country known for its high standard of living, strong welfare state, and active role in international peace and security.

Market Failure

A situation in which the allocation of goods and services by a free market is not efficient, often justifying government intervention.