Question

Based on Markowitz's work, which of the following portfolios could not lie on the efficient frontier?

a. Portfolio A: expected return of 10% and standard deviation of 20%.
b. Portfolio B: expected return of 18% and standard deviation of 32%.
c. Portfolio C: expected return of 14% and standard deviation of 18%. O
d. Portfolio D: expected return of 9% and standard deviation of 11%.

Answer 1

Portfolio B (expected return of 18% and standard deviation of 32%) could not lie on the efficient frontier.

Step-by-step explanation:

Based on Markowitz's work, the portfolios that lie on the efficient frontier are the ones that provide the highest expected return for a given level of risk. Therefore, any portfolio that has a lower expected return or a higher standard deviation than another portfolio on the efficient frontier cannot lie on the efficient frontier.

Let's analyze the portfolios mentioned:

• Portfolio A: expected return of 10% and standard deviation of 20%.
• Portfolio B: expected return of 18% and standard deviation of 32%.
• Portfolio C: expected return of 14% and standard deviation of 18%.
• Portfolio D: expected return of 9% and standard deviation of 11%.

Based on this information, we can conclude that Portfolio B (expected return of 18% and standard deviation of 32%) could not lie on the efficient frontier, as it has a higher standard deviation than Portfolio C (expected return of 14% and standard deviation of 18%), which provides a higher expected return at a lower level of risk.