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4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case. The point Pre corresponds to a risk-free asset, the red curve BME is the efficient frontier, the shaded area under the efficient frontier represents the feasible set of portfolios of risky assets, and the yellow curves 11 and 12 are indifference curves for a particular investor. EXPECTED RATE OF RETURN (Percent) 10 RISK (Portfolio's standard deviation) Point A, where the line PRF MZ is tangent to indifference curve 12 , represents: A portfolio that is dominated by portfolio B A portfolio that combines the risk-free asset with a portfolio of risky assets O A portfolio that provides a riskless return A portfolio that is dominated by some point along the line PRF MZ Which of the following is a correct definition of the line rRF MZ on the graph? o The efficient portfolio o The market risk premium O The market equilibrium o The Capital Market Line Suppose that the return on the risk-free asset is rRF = 15%, the return on the market portfolio is M = 20%, the market risk is om = 10%, and the portfolio risk is Op = 15%. Then the expected rate of return on an efficient portfolio equals . A) 27.50% B) 30.00% C) 20.00% D) 22.50% Generally, a less risky portfolio would have rate of return. A) Lower B) The Same C) Higher

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