Given recent evidence concerning the CAPM, which of the following portfolios might be expected to plot above the security market line? Multiple Choice a portfolio of cyclical stocks a portfolio that includes borrowed funds a portfolio of smaller companies a portfolio split between Treosury bills and the market index

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Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.