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29 August, 20:31

According to the CAPM, which of the following is not a true statement regarding the market portfolio? (A) It lies on the efficient frontier. (B) All securities in the market portfolio are held in proportion to their market values. (C) It is always the minimum-variance portfolio on the efficient frontier. (D) It includes all risky assets in the world, including human capital.

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  1. 29 August, 22:39
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    Answer: the correct answer is (C) It is always the minimum-variance portfolio on the efficient frontier.

    Explanation:

    The market portfolio isn't always the minimum-variance portfolio on the efficient frontier because a minimum variance portfolio indicates a well-diversified portfolio that consists of individually risky assets, which are hedged when traded together, resulting in the lowest possible risk for the rate of expected return. However, market portfolios are sometimes very risky and in some cases traders can lose all their money if the stocks in the portfolio are bad or fraudulent.
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