A portfolio is efficient if .
A)for a given standard deviation, there is no other portfolio with a higher expected return
B)for a given expected return, there is no other portfolio with a lower standard deviation
C)its standard deviation is equal to -1.0
D)for a given standard deviation, there is no other portfolio with a higher expected return and if, for a given expected return, there is no other portfolio with a lower standard deviation

Question

Quizplus · Accepted Answer

An efficient portfolio is one that has the maximum expected return for a given level of risk (measured by standard deviation), or equivalently, the minimum standard deviation for a given level of expected return. Therefore, option D correctly states that a portfolio is efficient if it satisfies both of these conditions. Option A alone is not enough to ensure efficiency as there could be another portfolio with a higher expected return at the same level of risk. Option B alone is also not enough as there could be another portfolio with a lower standard deviation at the same level of expected return. Option C is incorrect as standard deviation cannot be negative.

A Portfolio Is Efficient If