An efficient portfolio is one that
A) maximizes risk for a given level of return.
B) maximizes return at all risk levels.
C) maximizes return for a given level of risk.
D) minimizes return for a given level of risk.

Question

Quizplus · Accepted Answer

An efficient portfolio is one that maximizes return for a given level of risk. This means that, for any level of risk, an efficient portfolio will provide the highest possible return. It is not desirable to maximize risk for a given level of return (option A) or to minimize return for a given level of risk (option D). Option B, which suggests maximizing return at all risk levels, is not possible because a tradeoff exists between risk and return, and it is not possible to achieve high returns without taking on some level of risk.

An Efficient Portfolio Is One That