Question
Suppose a portfolio contains a risk-free financial security and a risky security, and that it is possible to lend and borrow at the risk-free rate:
Suppose a portfolio contains a risk-free financial security and a risky security, and that it is possible to lend and borrow at the risk-free rate:
A. The risk-free security delivers a positive return but it will not contribute to the overall volatility of the resulting portfolio. B. The resulting portfolios expected return is given by a linear combination of the two individual expected returns. C. The resulting portfolio generates an infinite set of volatilityreturn combinations in which higher returns can be achieved by taking more volatility. D. All the above are correct.
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