If you want to optimize your portfolio of risky securities, which portfolio is the ideal portfolio?...

If you want to optimize your portfolio of risky securities, which portfolio is the ideal portfolio?

a) the portfolio that is tangent to the CAL

b) The portfolio that is furthest to the right in the return/standard deviation space

c) the minumum variance portfolio

d) the portfolio that offers the highest return

Solutions

Expert Solution

Answer-

The correct option is option a. the portfolio that is tangent to the CAL

The optimal risky asset portfolio is at the point where the CAL is tangent to the efficient frontier and is the ideal portfolio

Options b,c and d are incorrect.

The portfolio that is furthest to the right in the return/standard deviation space may have high risk for a given ruturn.

A minimum variance portfolio is a combination of securities that combine to minimize the price volatility of the overall portfolio.

Risk and return are trade off as the portfolio with highest return cannot be possibe.

jeff jeffy answered 1 year ago

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