Dominant Portfolios Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 7 percent and risk of 10 percent. The expected return and risk of portfolio Yellow are 13 percent and 17 percent, and for the Purple portfolio are 9 percent and 14 percent.
A) Portfolio Blue dominates Portfolio Yellow
B) Portfolio Yellow dominates Portfolio Blue
C) Portfolio Purple dominates Portfolio Blue
D) Portfolio Purple dominates Portfolio Yellow

Question

Quizplus · Accepted Answer

Portfolio Yellow dominates Portfolio Blue because it has a higher expected return (13% vs. 7%) with a proportionally higher risk (17% vs. 10%), making it more efficient in terms of risk-return trade-off.

Dominant Portfolios Determine Which One of These Three Portfolios Dominates