CFA Level I · CFA Level I Exam · Portfolio Risk and Return: Part II
In capital market theory, the capital allocation line (CAL) is most accurately described as the line that:
The capital allocation line connects the risk-free asset with a chosen risky portfolio. It shows the return and risk combinations available by mixing the two. Plots against beta describe the security market line, and the minimum-variance frontier covers only risky assets.
- Aconnects the risk-free asset with a chosen risky portfolioCorrect
- Bplots expected return against beta for all individual securities
- Cshows the minimum-variance portfolios attainable from risky assets only
Explanation
The CAL shows the risk-return combinations from mixing the risk-free asset with a risky portfolio. Plotting return against beta describes the security market line, and minimum-variance portfolios of risky assets form the minimum-variance frontier.
Did you get it right without looking?
One question tells you little. A timed set on Portfolio Risk and Return: Part II shows your real accuracy, how long you take and where you lose marks.
More Portfolio Risk and Return: Part II questions
- Under capital market theory with homogeneous expectations and a risk-free asset, the market portfolio is most likely the:
- Portfolio A has an annual return of 12%, a standard deviation of 15% and a beta of 1.2. The risk-free rate is 3%. The Sharpe ratio of Portfo…
- In the capital asset pricing model (CAPM), the expected return on a security is most likely a function of the risk-free rate and:
- Under the capital asset pricing model, an investor holding a well-diversified portfolio is most likely to receive a risk premium for bearing…
- An analyst compares an investor's indifference curves with the capital allocation line. The investor's optimal portfolio is best described a…
- An investor can borrow at the same rate as the risk-free lending rate and invests 130% of her wealth in a risky portfolio with an expected r…