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**CFA Practice Question**

In equilibrium when only risky assets are available, ______

A. all investors will invest in the same optimal portfolio.

B. different investors will invest in different optimal portfolios.

C. some investors will be near the bottom (lowest risk) and others will be near the top (highest risk) of the efficient frontier without any investors in the middle to balance the market portfolio.

**Explanation:**As different investors have different risk tolerances, their indifference curves will have different slopes. Hence, different investors will find different optimal or tangent points between their indifference curves and the efficient frontier.

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**User Contributed Comments**
8

User |
Comment |
---|---|

Birdy101 |
what happend to CAPM, where all investors invest in the same optimal portfolio?? |

ontrack |
maybe this has something to do with the separation theorem where people invest in different optimal portfolios based on their financing options. |

afeldman |
this assumes there's no risk free asset? |

kenjisan |
CAPM assumes there is a risk free asset |

peteypete |
as long as it is on the efficient frontier. c is not right cause it states no investors in the middle |

JCopeland |
SML & CAPM both assume the existance of a RF asset. This scenario can only exist in a CML & Markowitz world where there can be different optimal portfolios. |

bloomt |
Without a risk free asset, we cannot draw the CAL. So the tangency point that we would normally choose isn't an option, and therefore any portfolio on the efficient frontier is a possibility. |

ctschro |
ty bloomt |