Portfolio A has expected return of 10% and standard deviation of 19%.Portfolio B has expected return of 12% and standard deviation of 17%.Rational investors will
A)Borrow at the risk free rate and buy A.
B)Sell A short and buy B.
C)Sell B short and buy A.
D)Borrow at the risk free rate and buy B.
E)Lend at the risk free rate and buy B.

Question

Quizplus · Accepted Answer

Rational investors prefer higher returns for lower risk. Portfolio B offers a higher expected return with a lower standard deviation compared to Portfolio A, making it more attractive. Selling A short and buying B aligns with this preference.

Portfolio a Has Expected Return of 10% and Standard Deviation