Quiz: Impact of tax on efficient frontier

Inclusion of taxes on the efficient frontier will shift the efficient frontier to: a) no change b) lower the frontier c) lower and to the left d) lower and to the right

b , I think. x-axis shows an independent variable anyway , the y is the only dependent variable. So each point in the frontier just moves down because of taxes

agreed. doesnt change the risk, only the return. However, it really changes the whole concept as the optimal portfolio is now dependent on one’s tax situation.

I think it’s lower to the left. The risk changes, it’s lower (because if you remember on the tax section of PWM, the govmt takes away part of the risk). The return will be lower. So low and left.

I’m not very sure about this, but wouldn’t the variance on the minimum-variance portfolio be less considering taxes? Therefore I’m leaning towards lower and to the left. ©.

It’s lower and to the left for sure.

lower and to the left … I remember reading that somewhere. definitely. the return is reduced because of taxes. once return is reduced – the std. deviation of the returns would also reduce. so everything goes down and to the left.

d is def out …i would go with lower and left also

Most of you got it right. The answer is c) lower and to the left as Govt takes away part of the risk through taxes.

inbead Wrote: ------------------------------------------------------- > Most of you got it right. The answer is c) lower > and to the left as Govt takes away part of the > risk through taxes. Where is the answer in CFAI text ?

trickster. makes sense