The optimal domestic portfolio combines the risk-free asset and a portfolio of domestic securities found on the efficient frontier.

Question

Quizplus · Accepted Answer

The optimal domestic portfolio is a combination of the risk-free asset and a portfolio of domestic securities that lies on the efficient frontier. By combining the risk-free asset with a portfolio on the efficient frontier, an investor can achieve a risk-return tradeoff that is superior to that of any other combination of assets. Hence, the statement is true.

The Optimal Domestic Portfolio Combines the Risk-Free Asset and a Portfolio