Which of the following statement(s) is(are) true regarding the selection of a portfolio from those that lie on the capital allocation line?
I) Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than
more risk-averse investors.
II) More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than
less risk-averse investors.
III) Investors choose the portfolio that maximizes their expected utility.
A. I only
B. II only
C. III only
D. I and III
E. II and III
E. II and III
All rational investors select the portfolio that maximizes their expected utility; for investors who are relatively more risk-averse, doing so means investing less in the optimal risky portfolio and more in the risk-free asset.
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