The optimal portfolio for an individual investor is represented by the point that lies on the
A) lowest possible utility curve and connects to the efficient frontier.
B) utility curve which is just tangent to the right side of the feasible set of risk-return options.
C) utility curve which is just tangent to the efficient frontier.
D) utility curve which represents the highest possible rate of return within the feasible set of risk-return options.

Question

Quizplus · Accepted Answer

The optimal portfolio for an individual investor is represented by the point that lies on the utility curve which is just tangent to the efficient frontier. This is because this point represents the highest possible expected return for a given level of risk, which is consistent with the investor's risk preference as expressed by their utility function. Choosing a point below this curve would result in a lower expected return for the same level of risk, while choosing a point above this curve would result in a higher level of risk for the same expected return, which would be inconsistent with the investor's risk preference.

The Optimal Portfolio for an Individual Investor Is Represented by the Point