CFA Practice Question

CFA Practice Question

Which of the following methods can be used to attain a higher risk-return combination than the market portfolio allows?
A. Add leverage and invest in the efficient risk-asset portfolio.
B. Choose an asset below the CML.
C. Choose an asset above the CML.
Explanation: It is possible to attain a higher risk-return combination than the market portfolio allows by adding leverage and investing in the efficient risk-asset portfolio. This increases both risk and return.

User Contributed Comments 7

User Comment
ylepape higher risk AND higher return ; combination unchanged ; I do not think the risk-return combination is better with more funds invested
johnsk Yes the combination is changed as you are borrowing money and leveraging the risk/return.
rockeR Hey guys, in my opinion,

it is not high risk, high return.

It is HIGH RISK, HIGH LOSS.
danlan Higher risk-return means higher risk and higher return, not higher return for same risk.
egghead fully agree. the dot would be still on the same CML that goes beyond market portfolio. Therefore risk / return trade-off is essentially the same
alles If it was possible to attain a higher risk-return combination (more return for 1 unit of risk) by leveraging the market portfolio, then everyone would be better off by leveraging as much as possible.
harrybay Is this an English exam? Because this is playing with words.
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