In this diagram, why is P the optimal risky portfolio? Y is acheivable and provides a higher return. Why isn’t Y the optimal risky portfolio?
Tangency of efficient frontier and CAL is optimal risky portfolio. The meaning of optimal risk portfolio is in fact there is not better return for given unit of risk. Y is acheviable and provides only better return but also is more risky than portfolio P. You cannot follow only better return with don’t consider the risk.