Suppose David Can Borrow and Lend at the Risk-Free Rate

question 62

Multiple Choice

Suppose David can borrow and lend at the risk-free rate of 5%.Which of the following three risky portfolios should he hold in combination with a position in the risk-free asset?

• A) portfolio with a standard deviation of 16% and an expected return of 12%
• B) portfolio with a standard deviation of 20% and an expected return of 16%
• C) portfolio with a standard deviation of 30% and an expected return of 20%
• D) he should be indifferent in holding any of the three portfolios

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