Which of the following statements is correct?
A) To achieve maximum attainable utility, always select a portfolio on a person's highest indifference curve.
B) To achieve maximum utility, select the portfolio with the lowest risk.
C) To achieve the highest utility, first choose the best efficiency frontier and then select the highest returns portfolio.
D) To achieve the highest utility, select the portfolio where the highest attainable indifference curve is tangential to the efficiency frontier.

Question

Quizplus · Accepted Answer

Option D is correct. To achieve maximum utility, select the portfolio where the highest attainable indifference curve is tangential to the efficiency frontier. This is because this point represents the optimal combination of risk and return, providing the most utility to the investor. The other options are incorrect because achieving maximum attainable utility is not always possible and selecting the portfolio with the lowest risk does not necessarily lead to maximum utility. Similarly, choosing the highest returns portfolio may not lead to the highest utility if it involves too much risk.

Which of the Following Statements Is Correct