A portfolio is efficient if which of the following is true?
A) For a given standard deviation, there is no other portfolio with a higher expected return.
B) For a given expected return, there is no other portfolio with a lower standard deviation.
C) For a given expected return, the correlation coefficient is equal to +1.0.
D) All of these are correct.

Question

Quizplus · Accepted Answer

A portfolio is considered efficient if it satisfies both conditions A and B: it has the highest expected return for a given level of risk (standard deviation) and the lowest risk for a given level of expected return. Choice C is not a condition for portfolio efficiency, as efficient portfolios do not require a correlation coefficient of +1.0. Therefore, both A and B are correct descriptions of an efficient portfolio, making D the correct answer.

A Portfolio Is Efficient If Which of the Following Is