Financial Risk Manager Part 1
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After a detailed presentation covering various financial risk metrics, two risk analysts engage in a discussion about the efficient frontier, a key concept in portfolio theory that represents the set of optimal portfolios offering the highest expected return for a defined level of risk. According to the Capital Asset Pricing Model (CAPM), which of the following statements correctly describes the efficient frontier?
A
The capital market line always has a positive slope and its steepness depends on the market risk premium and the volatility of the market portfolio.
B
The capital market line is the straight line connecting the risk-free asset with the zero beta minimum variance portfolio.
C
Investors with the lowest risk aversion will typically hold the portfolio of risky assets that has the lowest standard deviation on the efficient frontier.
D
The efficient frontier allows different individuals to have different portfolios of risky assets based upon their individual forecasts for asset returns.