Assume the following riskreturn possibilities for 8 differen

Assume the following risk-return possibilities for 8 different portfolios.

b.         Identify the efficient portfolios

Portfolio         Return            Risk

   A                  20%               18%

B                     22                    24

C                     20                    21

D                     26                    21

E                      15                    10

F                      15                    16

G                     27                    22

H                     31                    22

Solution

A portfolio is said to be dominating (efficient) the other if;

The expression A>B means stock A is the efficient stock and stock B is the inefficient stock.

Hence efficient portfolios are A,D,E and H. The form part of efficient frontier.