Question 27

Consider the efficient portfolios in the absence of a risk-free security. By combining lending and borrowing at the risk-free rate with the efficient portfolios, we can

I) Extend the range of investment possibilities; II) Change the set of efficient portfolios from being curvilinear to a straight line; III) Provide a higher expected return for any level of risk, except for the tangential portfolio and the risk-free asset .

Which of the following is true?

(a) I only. (b) I and II only.

(c) I, II, and III........

(d) II and III only. (e) I choose not to answer.