8006 Exam Dumps | Which of the following describes the efficient frontier most accurately?

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Exam I: Finance Theory Financial Instruments Financial Markets - 2015 Edition
PRMIA.8006.v2021-04-25.q101
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Question 35/101

Which of the following describes the efficient frontier most accurately?

A. The efficient frontier identifies portfolios with the lowest level of volatility for the lowest possible returns

B. The efficient frontier identifies portfolios with the highest return for a given level of volatility

C. The efficient frontier identifies portfolios with the highest level of volatility for a given level of returns

D. None of the above

Correct Answer: B

Explanation
The efficient frontier is a two dimensional plot with volatility and returns on its axes. For a given level of return, it helps identify the portfolio with the lowest volatility. From the other axis, it helps identify the portfolio with the highest return for a given level of volatility.
Therefore Choice 'b' is the correct answer. Note that in the exam you may be asked the question slightly differently.

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