Home Forums CFA CFA Level 1 Question regards efficient market frontier

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  • #2135

    cool_dude117
    Participant

    Can someone please explain this to me:

    A portfolio to the right of market portfolio on the CML is:
    a) A lending portfolio
    b) a borrowing portfolio
    c) an inefficient portfolio

    I chose c) but OA is B.

    • This topic was modified 1 year, 6 months ago by  admin.
    • This topic was modified 1 year, 6 months ago by  admin.
    • This topic was modified 1 year, 6 months ago by  admin.
    #2144

    admin
    Keymaster

    First to get everyone on the same page, CML refers to the line that is formed using linear combination of the market portfolio and the risk free rate. Therefore, when the question states that the right of the market portfolio on the CML is not exactly on the right side of the market portfolio but rather moving rightward along the CML.

    With that in mind, in order to obtain return higher than the market portfolio, one should borrow money and leverage in the market portfolio.

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