A __________ portfolio has the highest reward-to-risk ratio over any possible combination of the investment opportunity set.
A) Jensen-optimal
B) Sharpe-optimal
C) Treynor-optimal
D) Credit-optimal
E) Default-optimal

Question

Quizplus · Accepted Answer

The Sharpe-ratio measures the excess return earned per unit of risk taken, where risk is measured as the portfolio's standard deviation of returns. The Sharpe-optimal portfolio is the portfolio on the efficient frontier with the highest Sharpe ratio, indicating that it has the highest reward-to-risk ratio over any possible combination of the investment opportunity set. The other options (Jensen-optimal, Treynor-optimal, Credit-optimal, Default-optimal) are not commonly used portfolio optimization techniques.

A __________ Portfolio Has the Highest Reward-To-Risk Ratio Over Any