Question

1. The best complete portfolio for a particular investor is designated by:

1. The point of highest reward to variability ratio in the opportunity set.
2. The point of tangency with the opportunity set and the capital allocation line.
3. The point of tangency with iso-utility curve and the capital allocation line.
4. The point of the highest reward to variability ratio in the indifference curve.

2. The change from a straight to a kinked capital allocation line reflects:

A) reward-to-volatility ratio decreasing.

B) lending rate exceeding borrowing rate.

C) investors risk tolerance decreasing.

D) increase in the portfolio proportion of the risk-free asset.

Answer 1

1. The best complete portfolio for a particular investor is designated by the point of tangency with the indifference curve and capital allocation line and indifference curve is also known as Iso-utility curve.

All the other options are false as they are stating incorrect answers.

correct answer will be option (C)

2.change from straight to kinked capital allocation line will mean that reward to volatility ratio will be decreasing and borrowing rate will be exceeding the lending rate

Correct answer will be option ( A).