Final answer:
The efficient portfolio is the optimal risky portfolio with the highest reward-to-risk ratio and its beta i.
Step-by-step explanation:
The optimal risky portfolio with the highest reward-to-risk ratio is called the efficient portfolio. This portfolio is considered the most efficient because it maximizes returns while minimizing risk. It is constructed by combining different assets, such as stocks and bonds, in a way that provides the highest return for a given level of risk.
Beta, which measures the sensitivity of an asset's returns to the overall market, is an important factor in determining the risk of a portfolio. The beta of the efficient portfolio, referred to as beta i, indicates how volatile the portfolio is relative to the overall market. A beta value less than 1 indicates lower volatility, while a beta value greater than 1 indicates higher volatility.