andytrader

The graph below combines the efficient frontier with the indifference curves for two different investors, X and Y.
Which of the following statements about the above graph is least accurate?

A) The efficient frontier line represents the portfolios that provide the highest return at each risk level.

B) Investor X's expected return will always be less than that of Investor Y.

C) Investor X is less risk-averse than Investor Y.

---

Investor X has a steep indifference curve, indicating that he is risk-averse. Flatter indifference curves, such as those for Investor Y, indicate a less risk-averse investor. The other choices are true. A more risk-averse investor will likely obtain lower returns than a less risk-averse investor.

andytrader

According to Markowitz, an investor’s optimal portfolio is determined where the:

A) investor's highest utility curve is tangent to the efficient frontier.

B) investor's lowest utility curve is tangent to the efficient frontier.

C) investor's utility curve meets the efficient frontier.

---

The optimal portfolio for an investor is determined as the point where the investor’s highest utility curve is tangent to the efficient frontier.

andytrader

The optimal portfolio in the Markowitz framework occurs when an investor achieves the diversified portfolio with the:

A) highest return.

B) highest utility.

C) lowest risk.

---

The optimal portfolio in the Markowitz framework occurs when the investor achieves the diversified portfolio with the highest utility.

andytrader

Which of the following statements about the optimal portfolio is NOT correct? The optimal portfolio:

A) is the portfolio that gives the investor the maximum level of return.

B) lies at the point of tangency between the efficient frontier and the indifference curve with the highest possible utility.

C) may be different for different investors.

This statement is incorrect because it does not specify that risk must also be considered.

andytrader

Which of the following statements about the efficient frontier is least accurate?

A) Portfolios falling on the efficient frontier are fully diversified.

B) Investors will want to invest in the portfolio on the efficient frontier that offers the highest rate of return.

C) The efficient frontier shows the relationship that exists between expected return and total risk in the absence of a risk-free asset.

---

The optimal portfolio for each investor is the highest indifference curve that is tangent to the efficient frontier.