Chartered Investment Manager (CIM) Practice Exam · Question
When is an investment portfolio considered to be on the 'efficient frontier'?
The efficient frontier, a concept from Modern Portfolio Theory, represents the set of optimal portfolios that offer the highest expected return for a defined le
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Question: When is an investment portfolio considered to be on the 'efficient frontier'?
Answer options: ✅ When it offers the highest possible return for a given level of risk.
- When it contains only risk-free assets.
- When its returns are perfectly correlated with the market.
- When the portfolio's standard deviation is zero.
Correct answer: When it offers the highest possible return for a given level of risk.
Explanation: The efficient frontier, a concept from Modern Portfolio Theory, represents the set of optimal portfolios that offer the highest expected return for a defined level of risk, or the lowest risk for a given level of expected return.
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