Questions
Single choice
Which of the following statements regarding the capital allocation line (CAL) is false?[Fill in the blank]
Options
A.a. The CAL shows risk-return combinations.
B.b. The slope of the CAL equals the increase in the expected return of the complete portfolio per unit of additional standard deviation.
C.c. The slope of the CAL is also called the reward-to-volatility ratio.
D.d. The CAL is also called the efficient frontier of risky assets in the absence of a risk-free asset.
E.e. The CAL represents the investment opportunity set formed with a risky asset and a risk-free asset.
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Step-by-Step Analysis
The question asks which statement about the capital allocation line (CAL) is false. Let's examine each option carefully and compare it to standard CAPM/portfolio theory concepts.
Option a: 'The CAL shows risk-return combinations.' This is true. The CAL is a line in the risk–return plane that depicts the set of portfolios achievable by combining a risky asset (or portfolio) with a risk-free asset, illustrating how ex......Login to view full explanationLog in for full answers
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