The change from a straight to a kinked capital allocation line is a result of the:

1. Reward-to-variability ratio increasing.
2. Lending rate exceeding the borrowing rate.
3. Investors risk tolerance decreasing.
4. Lending rate is lower than the borrowing rate.

Elias is a risk averse investor. David is a more risk averse investor than Elias. Therefore,

1. For the same risk, David requires a lower rate of return than Elias
2. For the same return, Elias tolerates higher risk than David
3. For the same risk, Elias requires a higher rate of return than David
4. For the same return, David tolerates higher risk than Elias
5. Cannot be determined.