When is a portfolio considered to be efficient?
A) When no other portfolio offers higher expected returns with the same risk.
B) When no other portfolio offers lower risk with the same expected return.
C) When there is no portfolio with a higher return.
D) Choices a and b
E) All of the above.

Question

Quizplus · Accepted Answer

An efficient portfolio is one that offers the highest expected return for a given level of risk, or the lowest level of risk for a given expected return. Therefore, an efficient portfolio is one that satisfies both criteria - no other portfolio offers higher expected returns with the same risk (choice A) and no other portfolio offers lower risk with the same expected return (choice B). Choice C is not a complete definition of an efficient portfolio as it only refers to returns and not the relationship between risk and return. Hence, the best choice is D.

When Is a Portfolio Considered to Be Efficient