Q:
A:
Which
of the following is the most true regarding the type
of assets found along the efficient
frontier?
a) Exclusively portfolios consisting of several different assets.
b) Portfolios consisting of several different imperfectly correlated assets, as well as individual securities at certain points.
c) Portfolios consisting of several different perfectly correlated assets, as well as individual securities at certain points.
d) Individual securities, with some portfolios consisting of imperfectly correlated assets.
a) Exclusively portfolios consisting of several different assets.
b) Portfolios consisting of several different imperfectly correlated assets, as well as individual securities at certain points.
c) Portfolios consisting of several different perfectly correlated assets, as well as individual securities at certain points.
d) Individual securities, with some portfolios consisting of imperfectly correlated assets.
The correct answer is b.
The efficient frontier is comprised mainly of portfolios that contain several imperfectly correlated assets. In some cases, individual securities can be located on the end points of the curve.
The efficient frontier would not be mainly comprised of portfolios containing perfectly correlated assets as these portfolios are not benefiting from diversification.
The efficient frontier is comprised mainly of portfolios that contain several imperfectly correlated assets. In some cases, individual securities can be located on the end points of the curve.
The efficient frontier would not be mainly comprised of portfolios containing perfectly correlated assets as these portfolios are not benefiting from diversification.
MORE FAQS

What level of correlation among investments will guarantee market returns but have enough diversification to cushion price shocks?

What are the advantages of portfolio planning with the efficient frontier?

How is correlation used in modern portfolio theory?

What types of assets lower portfolio variance?

How do fund managers use correlation to create portfolio diversity?

How do investment advisors calculate how much diversification their portfolios need?

What is the difference between a copay and a deductible?

How do I find positive correlation in the stock market?

How is portfolio variance reduced in Modern Portfolio Theory?

How does correlation affect the stock market?

What is the difference between positive correlation and inverse correlation?

The BEST definition of a benchmark portfolio is:

How do I calculate the production possibility frontier in Excel?

What are some examples of positive correlation in technical stock market analysis?

What's the difference between rsquared and correlation?

What are common examples of Serial Correlation in finance?

Can the correlation coefficient be used to measure dependence?

How does covariance impact portfolio risk and return?

What are the most effective hedging strategies to reduce market risk?

Can a mean variance analysis be done for any investment?
RELATED FAQS

What level of correlation among investments will guarantee market returns but have ...
Learn how modern portfolio theory uses correlation to determine the efficient frontier for which assets to include in a portfolio ... 
What are the advantages of portfolio planning with the efficient frontier?
Learn about modern portfolio theory and the efficient frontier. Understand the advantages of portfolio planning with the ... 
How is correlation used in modern portfolio theory?
Discover how modern portfolio theory and the efficient frontier use correlation between investment assets to predict an optimal ... 
What types of assets lower portfolio variance?
Learn what type of assets reduce portfolio variance and how modern portfolio theory uses correlation coefficients. 
How do fund managers use correlation to create portfolio diversity?
Read about how contemporary investment fund managers use the concept of correlation to add diversification among assets in ... 
How do investment advisors calculate how much diversification their portfolios need?
Learn how modern portfolio theory (MPT) can help determine a diversified mix of assets for inclusion in a portfolio that ...
RELATED TERMS

Efficient Frontier
A set of optimal portfolios that offers the highest expected ... 
Cluster Analysis
An investment approach that places securities into groups based ... 
Positive Correlation
A relationship between two variables in which both variables ... 
Portfolio Investment
A holding of an asset in a portfolio. A portfolio investment ... 
Capital Growth Strategy
An asset allocation strategy that seeks to maximize capital appreciation, ... 
Basis Risk
The risk that offsetting investments in a hedging strategy will ...