The Separation Principle States That an Investor Will

question 106

Multiple Choice

The separation principle states that an investor will:

• A)choose any efficient portfolio and invest some amount in the riskless asset to generate the expected return.
• B)choose an efficient portfolio based on individual risk tolerance or utility.
• C)never choose to invest in the riskless asset because the expected return on the riskless asset is lower over time.
• D)invest only in the riskless asset and tangency portfolio choosing the weights based on individual risk tolerance.
• E)All of the above.

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Definitions:

Sales Budget

A detailed schedule showing expected sales expressed in both dollars and units.

Credit Sales

Sales made on credit, where payment is received after the goods or services are delivered.

Cash Sales

Transactions where the purchase of goods or services is paid for with cash at the time of sale.

Sales Forecast

The process of estimating future sales, helping businesses make informed procurement, production, and marketing decisions.