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Which of the following statement is least likely accurate regarding the efficient frontier?
- A. A risk averse investor will only choose portfolios along the efficient
frontier. - B. Portfolios that deliver the greatest return on each level of standard
deviation make up the efficient frontier. - C. The graphic that shows the efficient frontier has the variance on its
Y-axis.
- A. A risk averse investor will only choose portfolios along the efficient
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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.
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