The dominant portfolio with the lowest possible risk is:
A)the eﬃcient frontier.
B)the minimum variance portfolio.
C)the upper tail of the eﬃcient set.
D)the tangency portfolio.
E)None of the above.

Question

Quizplus · Accepted Answer

The minimum variance portfolio has the lowest possible risk due to its allocation of assets with the lowest covariance or correlation. While the efficient frontier represents a range of portfolios with the highest return for a given level of risk, the minimum variance portfolio has the lowest risk for any given level of return. The upper tail of the efficient set and the tangency portfolio do not necessarily guarantee the lowest possible risk.

The Dominant Portfolio with the Lowest Possible Risk Is