I am wondering what the CFAI will accept. Question: Describe how corner portfolios arise and explain how to use them in strategic asset allocation: Their Answer:Corner portfolios arise form a mean variance optimization in which asset class weights are constrained to be non negative. The global minimum variance portfolio is always included as a corner portfolio. Corner portfolios are a minimum variance portfolios in which an asset weight changes from zero to positive or from positive to zero along the minimum variance frontier. The usefulness of corner portfolios comes form the fact that, although few in number, they can be use to find the composition of any minimum variance portfolio. My answer originally: Corner portfolios arise form shorts being constrained. Corner portfolios allow an investor to mix allocations between them to achieve the desired risk return mix. Or Even more compact, using bullet points as they allow: - no short sales constraint creates corner portfolios - Allows investors to mix allocations to achieve the desired risk return ratio Do you think the last two answers are acceptable? It seems the practice questions are extremely verbose and detailed to a level I could probably never actually barf out on test day…
I think you would get some partial credit, but you left out the part where the allocation to certain assets change from zero to positive and vice versa.
It appears that the test questions (from past essay test samples) are not nearly as hard as the practice questions. I hope that remains the case…the EOC’s are brutal.