CAL as per Markowitz theory

CFA Level I Portfolio Management
#1

Experts,

As per mean-variance theory, CAL is a combination of risky asset and

a) feasible investments

b) risky assets

I was bouncing between these two answer choices. Why is A) wrong? OA is B. I think CAL depends on individual choice— depending on investor’s risk/return characteristics. In theory, we could have hundreds/thousands of frontiers and CAL, so A) should be correct. ISn’t it? However, I know that I am wrong because OA is B!

Please help me.

Thanks

#2

It’s a poorly worded question, because any feasible investment (other than the risk-free asset) is a risky asset.

The real exam won’t have stupid stuff like this on it.

#3

Thank you S2000magician!

#4

This is poorly drafted question . One option should have been Risk free asset in the answer choices. The CAL is a combination of Risky asset and risk free asset.

#5

You’re welcome.

#6

Exactly, your option C should be a risk-free asset, as CAL shows the combination between risky assets and risk-free assets.