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    Question

    The point of tangency between efficient frontier and

    risk-return indifferences curve depicts:
    A Sub-optimal portfolio Correct Answer Incorrect Answer
    B Optimal portfolio Correct Answer Incorrect Answer
    C Efficient portfolio Correct Answer Incorrect Answer
    D Potential loss making portfolio Correct Answer Incorrect Answer

    Solution

    The point of tangency between the efficient frontier and the risk-return indifferences curve depicts: Optimal portfolio The optimal portfolio represents the combination of risky assets that provides the maximum level of return for a given level of risk or the minimum level of risk for a given level of return. At the point of tangency between the efficient frontier (which represents the set of portfolios with the highest returns for a given level of risk) and the risk-return indifferences curve (which represents the investor's preferences for risk and return), the investor achieves the highest level of return for the chosen level of risk or the lowest level of risk for the chosen level of return. This point is known as the optimal portfolio and is considered the best combination of assets for an investor based on their risk tolerance and return objectives.

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