You want to create a two-asset portfolio. To have the best portfolio possible, you should select for the _________ portfolio.
A) Highest beta
B) Sharpe-optimal
C) Highest return
D) Sharpe-minimal
E) Market equivalent

Question

Quizplus · Accepted Answer

The Sharpe-optimal portfolio is the best choice for a two-asset portfolio as it considers both risk and return. The Sharpe ratio measures the excess return earned for each unit of risk taken, and the Sharpe-optimal portfolio maximizes this ratio. Therefore, it provides the highest return for a given level of risk or the lowest risk for a given level of return.

You Want to Create a Two-Asset Portfolio