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Describe how an investor may combine a risk-free asset and one risky asset in order to obtain the...

Question:

Describe how an investor may combine a risk-free asset and one risky asset in order to obtain the optimal portfolio for that investor.

Asset Allocation

Rather than take the risk of one asset underperforming, a balanced portfolio uses asset allocation by including multiple assets. This offers diversification and tailors the portfolio to the investor's risk tolerance.

Answer and Explanation:

A risk-free asset such as a government bond offers a stable, guaranteed rate of return. A single stock or stock mutual fund could be much more...

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