- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 1. Portfolio Risk and Return: Part I
- Subject 5. Efficient Frontier
CFA Practice Question
Risk-averse investors may choose different efficient portfolios because some ______
B. have higher risk tolerance than others.
C. prefer high risk and low expected returns.
A. have better information than others.
B. have higher risk tolerance than others.
C. prefer high risk and low expected returns.
Correct Answer: B
Each portfolio along the efficient frontier has a different risk-return combination, and each could appeal to a particular investor and her degree of risk aversion.
User Contributed Comments 6
| User | Comment |
|---|---|
| julescruis | A is irrelevant here. |
| chamad | and so is C. Risk averse do not prefer high risk |
| hannovanwyk | could A not be true? If the investor has better info, he would understand his risk better and therefore he might decide to undertake such a risk |
| Nightsurfer | This model assumes complete market efficiency (perfect information). Therefore, no investor can know more than any other. By consequence, they all have the same expectation of return. |
| michlam14 | for c, i don't think anyone will want high risk low return? risk seeking will also want high return for high risk, but just doesnt seek as much premium as a risk averse person for taking risk? |
| johntan1979 | Nightsurfer is right. Go review the chapter on EMH. |