Answer: The optimal risky portfolio is determined by the risk-free rate.

**Explanation:** - **Option A** is correct because the optimal risky portfolio is derived from the tangent point of the capital allocation line (CAL) and the Markowitz efficient frontier. A change in the risk-free rate alters the slope of the CAL, leading to a different tangent point and thus a different optimal risky portfolio. - **Option B** is incorrect because the optimal risky portfolio is selected based on the efficient frontier and the risk-free rate, not the investor's risk preferences. The investor's risk tolerance only affects the allocation between the risk-free asset and the optimal risky portfolio. - **Option C** is incorrect because the investor's optimal portfolio lies on the capital allocation line (CAL), not necessarily on the Markowitz efficient frontier. Only if the investor allocates no wealth to the risk-free asset will the optimal portfolio lie on the efficient frontier, but this is not a general rule.

Author: LeetQuiz Editorial Team