An efficient portfolio of a risk-averse organization would most likely be found on which part of the efficient frontier curve?

Question

Options

• ABelow the efficient frontier curve
• BAbove the efficient frontier curve
• CAlong the lower part of the efficient frontier curve
• DAlong the upper part of the efficient frontier curve

• A
  12% (7)
• B
  2% (1)
• C
  82% (49)
• D
  5% (3)

Explanation

The efficient frontier is a curve that plots the maximum expected return achievable for each level of risk. The lower portion of the curve represents low-risk, lower-return portfolios, while the upper portion represents high-risk, higher-return portfolios. A risk-averse organization prioritizes minimizing risk over maximizing return, so its optimal portfolio sits along the lower part of the efficient frontier - accepting lower returns in exchange for lower risk exposure. Portfolios below the curve are inefficient (too much risk for the return), and portfolios above the curve are unattainable.

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