Explanation
According to the mean variance criterion, an investor would always:
- prefer less risk to more risk given a certain level of returns,
- prefer more returns to less returns given a certain level of risk,
- if two portfolios are such that one provides higher returns at a higher risk, and the other provides a lower return at a lower risk, then we cannot say which of the portfolios the investor would prefer as that would depend upon the investor's risk preference.
The implication of the above is that an investor will always prefer a portfolio on the efficient frontier (the first two points above), as the portfolios on the efficient frontier always represent the maximum return for any given level of risk (or lowest risk given a certain level of desired return). As between two portfolios both of which are on the efficient frontier (last point above), the investor will pick based upon his or her level of risk tolerance.
Therefore statement II and III are correct, and Choice 'd' is the correct answer. The reference to drawdowns and risk neutrality in statements I and IV are meaningless in the context and are incorrect.