Canadian Securities Course (CSC) Practice Exam · Question
In portfolio management, what is the significance of the 'efficient frontier'?
The efficient frontier is a set of optimal portfolios that offer the highest expected return for a given level of risk, or the lowest risk for a given expected
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Question: In portfolio management, what is the significance of the 'efficient frontier'?
Answer options:
- It represents portfolios that offer the lowest risk for a given rate of return. ✅ It represents portfolios that offer the highest return for a given level of risk.
- It represents the combination of a risk-free asset and an optimal risky portfolio.
- It is the set of all possible portfolios that can be formed from available assets.
Correct answer: It represents portfolios that offer the highest return for a given level of risk.
Explanation: The efficient frontier is a set of optimal portfolios that offer the highest expected return for a given level of risk, or the lowest risk for a given expected return. Portfolios below the efficient frontier are suboptimal.
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