It is A.
Because the efficient frontier is found by minimizing the relevant function.
Expanding on what I mentioned earlier, If you were to actually create an efficient frontier in excel or any other software, you run your optimizations as a function of variance(risk). The plot you create is to maximize the the return given a set of variables at each level of variance.
Efficient frontier offers the highest return for given level of risk… The minimum-variance frontier is the expected return-standard deviation combinations of the set of portfolios that have the minimum variance for every given level of expected return. think of th MVF as a curved graph, where its humped to the left. if you think about it, it has portfolios with the same risk but with different returns… i.e. if you take a point below the global minimum and a point exactly above it. That’s not true for the efficient frontier, however, cause it starts at the global minimum, thus the line shall include portfolios with the highest possible returns ONLY.
for those who have Schweser’s book 3, I suggest you look at the graph on page 198. The graph plots the minimum variance frontier. the part of the curve that is light blue is the efficient frontier… which has the portfolios with the highest returns, given the same level of risk.
I can find A and B in reputable sources.
absolutely b. according to the Efficient Frontier theory you can have two levels of return for every level of risk. if you eliminate the lower level of return then you are left with the higher level of return for every level of risk. dont even need to know PM to answer this.
i think it’s just a theoretical difference. you start constructing minium variance from given level of return efficient frontier you start from X axis and as risk(on X) goes up your return goes up as well - so you start constructing it with given level of risk