You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to
A) 0.4667.
B) 0.8000.
C) 2.14.
D) 0.41667.
E) Cannot be determined.

Question

Quizplus · Accepted Answer

The slope of the capital allocation line is equal to the ratio of the difference between the expected return on the risky asset and the risk-free asset to the standard deviation of the risky asset. In this case, the slope is (0.12 - 0.05) / 0.15 = 0.4667.

You Invest $100 in a Risky Asset with an Expected