[amp_mcq option1=”largest expected return for the smallest level of risk” option2=”largest expected return and zero risk” option3=”largest expected return for a given level of risk” option4=”smallest level of risk” correct=”option3″]
The correct answer is: C. largest expected return for a given level of risk.
An efficient portfolio is one that maximizes the expected return for a given level of risk, or minimizes the risk for a given level of expected return. This is known as the efficient frontier.
Option A is incorrect because an efficient portfolio does not necessarily have the largest expected return. It only has the largest expected return for a given level of risk.
Option B is incorrect because an efficient portfolio does not necessarily have zero risk. It only has the largest expected return for a given level of risk.
Option D is incorrect because an efficient portfolio does not necessarily have the smallest level of risk. It only has the largest expected return for a given level of risk.