The introduction of risk-free borrowing and lending changes the nature of the original Markowitz efficient frontier by turning the efficient frontier into a straight line.

Question

Quizplus · Accepted Answer

The introduction of risk-free borrowing and lending allows for the creation of a Capital Market Line (CML), which is a straight line that represents the risk-return trade-off of portfolios that combine the risk-free asset with the market portfolio. This changes the original curved efficient frontier into a straight line.

The Introduction of Risk-Free Borrowing and Lending Changes the Nature