Portfolio Management Professional (PfMP) — Question 37

An optimal portfolio based on Modern Portfolio Theory would:

Answer options

• A. offer the maximum possible expected return for a given level of risk.
• B. generate the best possible return for a moderate level of risk.
• C. minimize risk and use existing resource pools.
• D. comprise a balanced mix of components based on complexity and risk.

Correct answer: D

Explanation

The correct answer is D because an optimal portfolio seeks to balance risk and complexity through diversification. Option A is incorrect as it focuses solely on maximizing returns for a given risk level without considering the mix of components. Option B incorrectly implies a focus on moderate risk, while C fails to address the comprehensive balance required in portfolio construction.