What Is Cross-Subsidization and When Is It Most Likely to Occur

question 81

Essay

What is cross-subsidization and when is it most likely to occur?

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Definitions:

Risk-Free Asset

An investment with a guaranteed return and no risk of financial loss, typically represented by government bonds.

Capital Allocation Line

A line that graphically represents the risk-versus-return profile of risky assets, and indicates the optimal portfolio of risky and risk-free assets.

Risk-Free Asset

An investment with a guaranteed return and no risk of financial loss, often represented by government bonds.

Risky Asset

An asset with an uncertain rate of return.