You are graphing the portfolio expected return against the portfolio standard deviation for a portfolio consisting of two securities. Which one of the following statements is correct regarding this graph?
A)Risk-taking investors should select the minimum variance portfolio.
B)Risk-averse investors should select the portfolio with the lowest rate of return.
C)Some portfolios will be efficient while others will not.
D)The minimum variance portfolio will have the lowest portfolio expected return of any of the possible portfolios.
E)All possible portfolios will graph as efficient portfolios.

Question

Quizplus · Accepted Answer

The graph of the portfolio expected return against the portfolio standard deviation will result in a graph where some of the portfolios are efficient, i.e., they offer the highest expected return for a given level of risk. The minimum variance portfolio will not necessarily have the lowest portfolio expected return of any of the possible portfolios, and it may not be the best choice for risk-taking investors. The portfolio with the lowest rate of return may not necessarily be the best choice for risk-averse investors either. Therefore, option C is the correct choice.

You Are Graphing the Portfolio Expected Return Against the Portfolio