Which of the following statements is most correct?
A) An inefficient portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return.
B) A single asset is called a portfolio
C) The goal of an inefficient portfolio is to minimize risk for a given level of return.
D) Combining negatively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk.

Question

Quizplus · Accepted Answer

Combining negatively correlated assets with the same expected return reduces the overall risk of the portfolio. Therefore, the portfolio will have a lower risk than if the assets were combined without negative correlation. Option A is incorrect because this describes an efficient portfolio, not an inefficient portfolio. Option B is incorrect because a single asset cannot be called a portfolio. Option C is also incorrect because the goal of an inefficient portfolio is to maximize return for a given level of risk, not minimize risk for a given level of return.

Which of the Following Statements Is Most Correct