I tried the 32 sample questions for Cfa1 given on the Cfa site. I had trouble with this, even going back over the curriculum text, I couldn’t really come to a satisfactory conclusion, would be grateful for clarification…cheers! ------------------------------------------------------------------------------------------------------------ 31. An investor with a portfolio located on the capital market line to the left of the market portfolio has: A. a lending portfolio. B. a borrowing portfolio. C. lower unsystematic risk than the market portfolio. D. higher unsystematic risk than the market portfolio ------------------------------------------------------------------------------------------------------------- The correct answer is A,(allegedly)
Left of Market portfolio means, you invested partially in Market portfolio and partially in risk free asset. Investment in risk free asset is considered to be lending of money…
Tks…I appreciate the response…sort of makes sense, that you are paying the risk free rather than a satisfactory investment rate…
The idea is that some combination of RFR and Market Portfolio will give the best portfolio for any desired level of risk. Portfolios on the CML to the left of the market portfolio represent portfolios with the level of risk below the one of the market portfolio. You can achieve such optimal portfolios by investing only a portion of your money in the market portfolio and putting the rest in the bank (lending money). If you are comfortable with the risk of market portfolio, invest 100% of money in the market portfolio. If you want to take more risk, borrow money from the bank and invest that additional amount in the market portfolio too.