Goal of risk management

CFA Level I Portfolio Management
#1

I have done this question from the Schweser Notes:

Effective risk management would most likely attempt to:

A. maximize expected return for a given level of risk

B. minimize risk for a given level of expected return

C. reduce any significant risks the firm is exposed to

The answer given by the Notes is A.

I would have agreed that B is wrong if B was to only say ‘minimize risk’. But the phrase ’ for a given level of expected return’ makes me think again. When doing portfolio management, don’t we also adjust weights of assets to minimize risk for the same level of expected return? This therefore increases investors’ utility which is consistent with the goal of risk management. So I think this answer would make sense.

On the other hand, it’s claimed that we cannot control returns and we can only control risk. So given a level of risk, how can we maximize expected return (answer A)?

Can anyone please help me explain this question?

Thank you.

#2

In _ portfolio _ management, if you minimize risk for a given level of expected return, you’re on the optimal frontier, but not necessarily the _ efficient _ frontier; if you maximize expected return for a given level of risk, you’re on the efficient frontier.

That said, it’s really a _ portfolio _ management question, not a risk management question. The author of the question is trying to be too clever.

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