Guy’s please clarify why my answer is wrong? Which of the following statements best describes an investment that is not on the efficient frontier? A) There is a portfolio that has a lower risk for the same return. B) There is a portfolio that has a lower return for the same risk. C) The portfolio has a very high return. Your answer: B was incorrect. The correct answer was A) There is a portfolio that has a lower risk for the same return. The efficient frontier outlines the set of portfolios that gives investors the highest return for a given level of risk or the lowest risk for a given level of return. Therefore, if a portfolio is not on the efficient frontier, there must be a portfolio that has lower risk for the same return. Equivalently, there must be a portfolio that produces a higher return for the same risk.
Answers A and B don’t describe the portfolio they describe other portfolios in relation to the one being considered. Name the investment in the question Portfolio A You are looking for the answer that will make portfolio A not on the efficient frontier The question is saying this; Which of the following statements best defines investment A as not being on the efficient frontier? So look at the answers like this A)There is a portfolio that has a lower risk than portfolio A for the same return B) There is a portfolio that has a lower return than portfolio A for the same risk(A is more efficient) C) Portfolio A has a very high return(Has nothing to do with the efficient frontier it is a risk vs return measure)
I think this is a bad question. Option B) We can assume that “the investment” is below efficient frontier; hence it has a lower return but with the same risk as “the one” on the frontier.
It’s a correctly defined question. A is the best option. If B was “there is a portfolio with the same risk but higher return”, it would’ve been correct.
It was very clear to me. I think wording of questions is very important and one reason for the low pass rate. Can you imagine if english is not your native language or how these questions might tranaslate?
I dint get the question very well either…where did you find this question?
From question bank, but now i understand the question may be i read it fast while answering.