Which one of the following distinguishes a minimum variance portfolio?
A)lowest risk portfolio of any possible portfolio given the same securities but in differing proportions
B)lowest risk portfolio possible given any specified expected rate of return
C)the zero risk portfolio created by maximizing the asset allocation mix
D)any portfolio with an expected standard deviation of 9% or less
E)any portfolio created with securities that are evenly weighted in respect to the asset allocation mix

Question

Quizplus · Accepted Answer

A minimum variance portfolio is defined as the portfolio with the lowest possible risk (measured by standard deviation) out of all possible portfolios that can be constructed from a given set of securities. Therefore, option A correctly distinguishes a minimum variance portfolio. Option B is incorrect because it implies that there is a minimum variance portfolio for every expected rate of return, which is not true. Option C is incorrect because a zero risk portfolio does not exist in practice. Option D is incorrect because it puts a specific limit on the standard deviation that is not always true. Option E is incorrect because the allocation mix is not specified and evenly weighting the securities does not necessarily create a minimum variance portfolio.

Which One of the Following Distinguishes a Minimum Variance Portfolio