- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 52. Portfolio Risk and Return: Part I
- Subject 4. Risk Aversion and Portfolio Selection

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**CFA Practice Question**

Consider a risky portfolio, P, with an expected rate of return of 0.15 and a standard deviation of 0.15, that lies on a given indifference curve. Which one of the following portfolios might lie on the same indifference curve?

B. E(r) = 0.15; Standard deviation = 0.10

C. E(r) = 0.10; Standard deviation = 0.10

D. E(r) = 0.20; Standard deviation = 0.15

A. E(r) = 0.15; Standard deviation = 0.20

B. E(r) = 0.15; Standard deviation = 0.10

C. E(r) = 0.10; Standard deviation = 0.10

D. E(r) = 0.20; Standard deviation = 0.15

Correct Answer: C

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**User Contributed Comments**
7

User |
Comment |
---|---|

aniketcpp |
any explnataion?? |

johntan1979 |
Look at the graph, you'll understand better. |

jonan203 |
think of any curve with a slope, if P shared a curve with A, B or D, the curve wouldn't be a curve anymore. plot each portfolio on some graph paper and you'll see why. |

davcer |
sharpe ratio or slope is what matters |

Kevdharr |
If standard deviation goes up, then the expected return must go up. So A is wrong... If standard deviation goes down, then expected return must go down. So B is wrong and C is correct. If standard deviation remains the same, then the expected return must also remain the same. So D is wrong... |

UcheSam |
Good one @Kevdhair, that was the principle I used. |

Pooja999 |
@Kevdharr thanks! |