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CFA Level 1 Question of the Week - Portfolio Management
Which of the following statement is least likely accurate regarding the efficient frontier?
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CFA Level 1 Question of the Week - Portfolio Management 7 votes
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.
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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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