The optimal portfolio for a risk-averse investor:
A) must occur at the point of tangency between the highest indifference curve and the global minimum variance portfolio.
B) occurs at the point of tangency between the highest indifference curve and the highest expected return.
C) occurs at the point of tangency between the highest indifference curve and the efficient set of portfolios.
D) occurs at the point of tangency between the highest expected return and lowest risk efficient portfolios.

Question

Quizplus · Accepted Answer

The optimal portfolio for a risk-averse investor is found at the point where the investor's highest indifference curve is tangent to the efficient frontier, representing the set of portfolios that offer the highest expected return for a given level of risk. This point maximizes the investor's utility given their risk aversion.

The Optimal Portfolio for a Risk-Averse Investor