Efficient Portfolio Frontier: Maximizing Return for Risk

QUESTION 1 (A)
The efficient portfolio frontier is the bunch of portfolios that offers the maximum rate of return for a
particular level of risk or the lowest level of risk for a particular level. Portfolio that lies below the
level of efficient frontier are known to be sub optimal portfolio because they do not provide a
maximum rate of return for a particular level of risk. Sometimes portfolio also have a very high level
of risk but the return is very much defined .According to the risk taken by the investor in their
portfolio ,return is not according to the mark. The efficient portfolio theory was introduced by Nobel
Laureate Harry Markowitz in the year 1952 and is related to the modern portfolio theory concept.
( InvestingAnswers, Inc, 2019)
Graphically efficient portfolio frontier represents that maximizes the return for the risk undertaken.
Return of an efficient portfolio is mainly dependent upon the combinations of investment that make
up the portfolio. Generally investors overload the portfolio with shares and securities which offer the
maximum return but when combined together there standard deviation is very much lower as
compared to the standard deviation of the individual securities. The efficient frontier also allows the
investors to understand that how the portfolio expected return can vary or change with the
percentage of risk borne by the investors. ( InvestingAnswers, Inc, 2019)
QUESTION 1 (B)
The efficient portfolio is gaining importance because of the following few reasons which can be
depicted here in below:
 The efficient portfolio depicts the relationship between the return that can be expected
from the portfolio and the portfolio volatility. It can also be depicted on the graph of a risk
against the expected return form the portfolio. (Pietersz, 2019)
 The efficient portfolio is also a main concept to the modern portfolio theory.
 The efficient portfolio frontier theory is mainly important to the theory of portfolio
construction and valuation. (Pietersz, 2019)
 Diversification benefits can be illustrated through the efficient portfolio frontier theory.
 The efficient frontier is used to drawn a market curve when there is no risk free assets.
When there is availability of a risk free asset in the market the curve becomes a simple
straight line which is called a securities market line.
 The efficient frontier gives the best level of return expected from undertaking a particular
level of risk or the minimum amount of risk undertaken in order to gain the maximum
benefit of return from the portfolio. (Pietersz, 2019)
QUESTION 1 (C)
The market is highly volatile in nature and is lying in the range of 7300 to 9800.The higher the
volatility in the market the more risky the security is and the investment in the market. Generally the
volatility in the market is measured through the standard deviation or variance. The high volatility in