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:

Steps

A sequence of actions or methodical process to accomplish an end.

Organic Product

A compound or substance that contains carbon atoms bonded to hydrogen or other elements, primarily produced by living organisms but also synthesized in laboratories.

Reaction

A process in which substances interact to form new substances with different properties.

Transformation

The process of changing the structure or properties of a molecule, often used in context with chemical transformations.