If an investor has a portfolio that has constant proportions in T-bills and the market portfolio, the portfolio's characteristic line will plot as a line with ___________. If the investor can time bull markets, the characteristic line will plot as a line with ___________.
A) a positive slope; a negative slope
B) a negative slope; a positive slope
C) a constant slope; a negative slope
D) a negative slope; a constant slope
E) a constant slope; a positive slope

Question

Quizplus · Accepted Answer

A portfolio with constant proportions in T-bills and the market portfolio will have a characteristic line with a constant slope because the risk-return profile is linear and consistent. If the investor can time bull markets effectively, the characteristic line will plot with a positive slope, indicating higher returns for higher levels of risk, as the investor is able to capitalize on market upswings.

If an Investor Has a Portfolio That Has Constant Proportions