The optimal risky portfolio can be identified by finding ____________.
I.the minimum variance point on the efficient frontier
II.the maximum return point on the efficient frontier the minimum variance point on the efficient frontier
III.the tangency point of the capital market line and the efficient frontier
IV.the line with the steepest slope that connects the risk free rate to the efficient frontier
A) I and II only
B) II and III only
C) III and IV only
D) I and IV only

Question

Quizplus · Accepted Answer

The optimal risky portfolio is identified by the tangency point of the capital market line and the efficient frontier, which is given by option III. Option IV is not correct because it describes the capital market line itself, not the optimal risky portfolio. Option I is incorrect because it identifies the minimum variance point, which does not necessarily correspond to the highest return for a given level of risk. Option II is incorrect because it identifies the point with the maximum return, but this may not correspond to the optimal level of risk for an investor.

The Optimal Risky Portfolio Can Be Identified by Finding ____________