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True/False. The optimal combination of risky assets corresponds to the point of tangency between a graph...

True/False. The optimal combination of risky assets corresponds to the point of tangency between a graph of all efficient portfolio combinations of two assets and a line which begins at the risk-free rate along the y-axis of the graph.

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Answer #1

TRUE

This line is know as as Capital Allocation line (CAL), CAL with optimal combination of risky assets tangent to the efficient frontier start from risk free rate on y-axis where Y-axis represent rate of return and X-axis represent Standard deviation.

CAL begin from risk free rate means, when optimal portfolio has zero risk i.e nil standard deviation then rate of return portfolio must be equal to risk free rate.

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