An efficient frontier is:
A) a combination of securities that have the highest expected return for each level of risk.
B) the combination of two securities or portfolios represented as a convex function.
C) a combination of securities that lie below the minimum variance portfolio and the maximum return portfolio.
D) a combination of securities that have an average expected return for each level of risk.

Question

Quizplus · Accepted Answer

An efficient frontier represents the combination of securities or portfolios that have the highest possible expected return for each level of risk. It is a curve that plots the expected return on the vertical axis and the risk, usually represented by standard deviation, on the horizontal axis. The portfolios that lie on the curve are considered "efficient," meaning that no other portfolio can offer a higher expected return for the same level of risk, or a lower level of risk for the same expected return. Therefore, the efficient frontier represents the optimal portfolio choices for an investor seeking to maximize returns while minimizing risk.

An Efficient Frontier Is