PFMP · Question #747
PFMP Question #747: Real Exam Question with Answer & Explanation
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Question
Working previously in the financial industry and studying finance and risk in graduate school, you are familiar with Markowitz's Efficient Frontier theory. Now assume you are the portfolio manager for a state government agency. Your agency has a reputation of being risk adverse but given recent budget cuts, you have convinced your executive team it needs to pursue some new programs and projects to demonstrate its benefits to the state. You decided to apply the Efficient Frontier concepts to show them the current state of its components in terms of risk and associated costs. You explained the portfolio is efficient if it has:
Options
- AA mix of components--from high risk/high return to low risk/low return
- BThe ability to quantify the value of risk in monetary terms
- CThe possible overall portfolio value with the greatest possible benefits
- DThe best possible expected level of return for its level of risk
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