Question

The optimal risky portfolio can be identified by finding:

The minimum-variance point on the efficient frontier
The maximum-return point on the efficient frontier and the minimum-variance point on the efficient frontier
The tangency point of the capital market line and the efficient frontier
The line with the steepest slope that connects the risk-free rate to the efficient frontier

Answer 1

The correct answer is: the tangency point of the capital market line and the efficient frontier.

Step-by-step explanation:

Finding the tangency point of the capital market line and the efficient frontier is a strategy to reduce the risk. The mixing of values that have a less than perfect correlation reduces portfolio risk without sacrificing profitability, however, there are some limitations like complex numerical calculations and the fact that the strategy does not take into account the commissions and expenses derived from the investment in assets.