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What is the efficient frontier in portfolio theory?

  1. A The set of portfolios offering the highest expected return for each level of risk
  2. B The lowest risk portfolio only
  3. C The market portfolio alone
  4. D The risk-free asset
Answer

The set of portfolios offering the highest expected return for each level of risk

Adding a risk-free asset produces the capital allocation line, and the tangency point is the optimal risky portfolio.

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