Schweserpro Question ID#: 5512

Can someone provide an alternate/better explanation for choice C??? TIA! For an investor to move further up the Capital Market Line than the market portfolio, the investor must: A) reduce the portfolio’s risk below that of the market. B) continue to invest only in common stocks. C) borrow and invest in the market portfolio. D) diversify the portfolio even more. Your answer: D was incorrect. The correct answer was C) borrow and invest in the market portfolio. Portfolios that lie to the right of the market portfolio on the capital market line (“up” the capital market line) are created by borrowing funds to own more than 100% of the market portfolio (M). The statement, “diversify the portfolio even more” is incorrect because the market portfolio is fully diversified.

You should know the difference between borrowing and lending portfolios. Bear in mind the fact that CML is obtained by combining Risk-free asset with Market Portfolio.

borrowing and lending portfolios??? What is that??? I swear I don’t remember a shit!!! SOS!

Book 4, SS12, Reading 51, page 259. Study the chart on top of the page, that should do the trick.