Which of the following does **NOT** accurately reflect a statement describing the resampled efficient frontier? A) A portfolio may be considered statistically equivalent if the manager’s portfolio is within a 90% confidence interval of the most efficient portfolio. B) A single portfolio with specific asset class weights at each level of return. C) At each level of return the most efficient of the simulated efficient portfolios is at the center of a distribution.

I would say B but I don’t like this question either.

I think B is not true because there are multiple portfolios with specific asset class weights at each level of return.

However, C seems incorrect as well because the “most efficent” portfolio is determined through an averaging process at each level of return, there is not necessarily a single simulated portfolio at the center of each distribution. I guess you could say that the portfolios at the center of the distributions are closest to the efficent frontier and therefore are most efficent so C is true.

B

Going to say B but C is suspect.

Answer: B

Kaplan explanation: A single portfolio with specific asset class weights at each level of return describes traditional mean variance optimization. The other answer choices describe the resampled efficient frontier where Monte Carlo simulation is used to create an efficient frontier at each return level and run thousands of times resulting in an efficient frontier that is the result of an averaging process. The efficient frontier becomes a blur rather than a single sharp curve. At each level of return, the most efficient of the simulated efficient portfolios is at the center of the distribution.