Which of the following statements is true?
An investment that is not on the efficient frontier always is high risk. An investment that is not on the efficient frontier always has the lowest returns. An investment that is not on the efficient frontier may create a portfolio that has a lower risk for the same return
Can somebody please tell me the answer.
I think answer c is correct.
I’m not entirely sure what the third answer means: how does an investment create a portfolio?
However, even if the author meant that if an investment is not on the efficient frontier, there is another portfolio that has lower risk for the same expected return, it isn’t necessarily true. A portfolio can be on the _ optimal _ frontier (lowest risk for a given return) without being on the efficient frontier (highest return for a given level of risk).
In short, there is no correct answer for this question; the author blew it. At least twice.
Thank you both for your help. :