CFA Level 1 Question of the Week – Portfolio Management

The correct answer is C.

The graphic that demonstrates the efficient frontier has the standard deviation at its X-axis and the return on its Y-axis.

Option A is a correct statement. Markowitz’s theory relies on the claim that risk-neutral investors tend to seek out portfolios on the efficient frontier. A risk-averse investor will choose a portfolio below the efficient frontier.

Option B is a correct statement. Portfolios that deliver the greatest return on each level of standard deviation (or risk) make up the efficient frontier.