Is this wrong or am I missing something?? Which of the following statements best describes an investment NOT on the efficient frontier? A) There is a portfolio that has a lower return for the same risk. B) There is a portfolio that has a lower risk for the same return. C) The portfolio has very high risk. D) The portfolio has a very high return. Your answer: A was incorrect. The correct answer was B) 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.
yeah i think its A too
This should be ‘A’ as per my understanding. Is this a CFAI question?
B is correct. Lets say we have a portfolio A. If there is a portfolio B that has a lower return for the same risk, that only says B is not on the efficient frontier because A is the better option. If there exists a portfolio C with lower risk for the same return as A, that means C is a better option and so A can’t be on the efficient frontier.
I’m not buying it. I think it’s A.
its from qBank
Why should this not be B? If there is a portfolio with lower risk offering the same return, then this would not be on the efficient frontier.
I understand why B is correct but they worded it really weird. The answer discusses a portfolio in relation to the one that you are looking for instead of the other way around. Tricky.
thanks prosetti…read read and reread…and now finally it makes sense.