We can improve our utility by Choosing a portfolio in the efficiency frontier that has a higher risk. That is option (A) Choose a portfolio in the efficiency frontier that has a higher risk.
A portfolio is a collection of financial assets, such as securities, bonds, commodities, cash, and cash equivalents, such as closed-end funds and exchange-traded funds (ETFs). Most people think that a portfolio's core consists of equities, bonds, and cash.
Select an efficiency frontier portfolio with a larger risk so we can increase utility. The efficacy frontier's slope indicates how much more projected return you can get for taking on additional risk in your portfolio. We can get a lot more expected return for an additional unit of standard deviation if the slope is higher. In this case, the slope of the efficiency frontier is greater than the slope of the portfolio Zinc's indifference curve. Consequently, you should select a riskier but more effective portfolio.
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COMPLETE QUESTION:
Suppose that you hold a portfolio of Zinc. Suppose that:
(1) The slope of the efficiency frontier at Zinc is equal to .02.
(2) The slope of your indifference curve at Zinc is equal to .01.
How can you improve your utility?
A. Choose a portfolio on the efficiency frontier that has a higher risk.
B. Keep Zinc.
C. Choose the minimum variance portfolio.
D. Choose a portfolio on the efficiency frontier that has a lower risk.
