7) As the correlation between two stocks changes, the shape of investment opportunity set will not change.

a. True

b. False

8) CAL (Capital Allocation Line) connects the risk-free rate and a risky portfolio while CML (Capital Market Line) links theminimum-variance portfolioand the market portfolio.

a. True

b. False

9) You have $500,000 available to invest. The risk-free rate, as well as your borrowing rate, is 8%. The return on the risky portfolio is 10%. If you wish to earn a 20% return, you should borrow your money at the risk-free rate.

a. True

b. False

10) The efficient frontier represents a set of portfolios that minimize expected return for a given level of risk.

a. True

b. False

11) According to the capital asset pricing model(CAPM), a fairly priced security will plot along the security market line (SML).

a. True

b. False

12) The security market line (SML) is valid for individual assets only while the security characteristic line(SCL) is valid for well-diversified portfolios only.

a. True

b. False