Question

You know that a portfolio with expected return 9% and volatility 26% is on the efficient frontier. Which of the following could be on the efficient frontier?

1. A portfolio with return 6% and volatility 26%

2. A portfolio with return 9% and volatility 32%

3. A portfolio with return 8% and volatility 37%

d. None of the above

Answer 1

Answer – a portfolio with return 8% and volatility 37%

Portfolio with 6% return and 26% volatility could not be in efficient frontier because it is inferior to Portfolio with 9% return and 26% volatility.[at same risk level we can earn 9% return in portfolio]

Portfolio with 9% return and 32% volatility could not be in efficient frontier because it is inferior to Portfolio with 9% return and 26% volatility.[9% return can be earned with 26% volatility instead of 32% volatility]