In the mean-standard deviation graph,the line that connects the risk-free rate and the optimal risky portfolio,P,is called ______________.
A)the Security Market Line
B)the Capital Allocation Line
C)the Indifference Curve
D)the investor's utility line
E)none of the above

Question

Quizplus · Accepted Answer

The line that connects the risk-free rate and the optimal risky portfolio P is called the Capital Allocation Line. It represents the set of portfolios that investors can form when combining a risk-free asset with a risky portfolio. The slope of this line is known as the Sharpe ratio, which is a measure of the excess return per unit of risk of a portfolio. Investors can choose the portfolio that lies on this line based on their risk preferences and desired level of return. The other options listed are not correct descriptions of this line.

In the Mean-Standard Deviation Graph,the Line That Connects the Risk-Free