Understanding the Efficient Frontier in Modern Portfolio Theory

Medium Portfolio Risk And Return Modern Portfolio Theory

In the context of Modern Portfolio Theory (MPT), an investor aims to construct a portfolio that maximizes expected return for a given level of risk. One key concept in MPT is the efficient frontier, which represents the set of optimal portfolios that offer the highest expected return for a defined level of risk. Which of the following statements regarding the efficient frontier is NOT true?

The efficient frontier is composed of risk-return combinations that are superior to the market portfolio.

Portfolios on the efficient frontier offer the highest expected return for a given risk level.

Investors should only choose portfolios that lie on the efficient frontier.

Hint

Submitted5.2K

Correct3.6K

% Correct69%