Question

If an investor wants a portfolio that maximizes return while accepting a specific level of risk they should construct:
A, risk free portfolio
B,efficient portfolio
C, Diversified portfolio

Answer 1

The best choice for an investor who wants to maximize returns while accepting a specific level of risk is:

**B, efficient portfolio.**

An efficient portfolio is one that offers the highest expected return for a given level of risk, according to Modern Portfolio Theory (MPT). This concept suggests that it’s possible to construct a portfolio of assets that maximizes returns for a given level of risk or minimizes risk for a given level of expected return, thereby balancing risk and reward effectively.

A risk-free portfolio (A) would involve investments that carry no risk, such as treasury bills, which would not maximize returns compared to riskier assets. A diversified portfolio (C) aims at reducing risk by spreading investments across various assets, but it does not necessarily ensure that the portfolio is efficient or maximizes returns for the specific risk level being accepted.

Therefore, the most appropriate answer for maximizing returns at a specific risk level is **B, efficient portfolio.**