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NEW QUESTION: 1
The 'transformation line' expresses the relationship between
A. Asset beta and expected return
B. The risk free rate and expected market risk premiums
C. Expected risk and return for all portfolios lying on the efficient frontier
D. Expected risk and return for a portfolio comprising a riskless asset and a risky bundle
Answer: D
Explanation:
Explanation
The transformation line represents the various possible combinations of the 'risky bundle' and the risk free asset. Investors can choose different combinations of the risky and risk-free asset depending upon their risk appetite. The transformation line meets the y-axis (portfolio returns) at the point equal to the risk free rate.
Choice 'a' is the correct answer and the rest are incorrect.
The highest possible transformation line, ie the transformation line with the maximum slope, is the transformation line joining the risk free rate on the y-axis and the portfolio with the maximum Sharpe ratio on the efficient frontier. This line is called the 'capital markets line'. Investors can pick any point on this line according to their risk appetite, and doing so would maximize the return they can obtain for their desired level of risk. The capital markets line is tangential to the efficient frontier. The Sharpe ratio stays constant throughout the CML.
Remember that the transformation line and the capital markets lines are different from each other - there is only one CML for an efficient frontier, whereas there can be multiple transformation lines.

NEW QUESTION: 2



A. Option B
B. Option C
C. Option A
D. Option D
Answer: C

NEW QUESTION: 3
The Unified Medical Language System (UMLS) is a project sponsored by the
A. World Health Organization.
B. Officer of Inspector General.
C. CMS.
D. National Library of Medicine.
Answer: D