When Borrowing and Lending at a Risk-Free Rate Are Allowed

Multiple Choice

When borrowing and lending at a risk-free rate are allowed, which capital allocation line (CAL) should the investor choose to combine with the efficient frontier?I) The one with the highest reward-to-variability ratio.II) The one that will maximize his utility.III) The one with the steepest slope.IV) The one with the lowest slope.

A) I and III
B) I and IV
C) II and IV
D) I only
E) I, II, and III