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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.
42% 3 votes
B. Portfolios that deliver the greatest return on each level of standard deviation make up the efficient frontier.
0% 0 votes
C. The graphic that shows the efficient frontier has the variance on its Y-axis.
57% 4 votes

Comments

  • Matt_AnalystPrepMatt_AnalystPrep MontrealPosts: 118 Associate
    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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