On a standard expected return versus standard deviation graph, investors will prefer portfolios that lie to the ________ the current investment opportunity set.
A) left and above
B) left and below
C) right and above
D) right and below

Question

Quizplus · Accepted Answer

Investors will prefer portfolios that provide higher expected returns for a given level of risk (as represented by standard deviation). Therefore, portfolios to the left of the current investment opportunity set (i.e. portfolios with higher expected returns and the same level of risk) are more attractive to investors. Additionally, portfolios above the current investment opportunity set (i.e. portfolios with the same expected return but lower risk) are also more attractive to investors. Therefore, the correct choice is A - left and above.

On a Standard Expected Return Versus Standard Deviation Graph, Investors