CASE 3 (6 marks):The following graph shows the efficient frontier for the portfolio containing x, y and zsecuritiesEFFICIENT FRONTIER0.00525D0.00475ВA0.00425W 0,003750.003250.002750.0060.00650.0070.00750.0080.0085op3 а)Whichcombination of the portfolio is most efficient or the closest to optimal, A, B, C or D andwhy? Additionally, explain the difference between each of these portfolios.3 b) If the star represents portfolio E, is it better than B? Explain why or why not.3 c) If the triangle represents portfolio F, is it better than C? D? Explain why or why not.ERP

3a).Optimal portfolio is the one where the Capital allocation line makes a tangent with efficient…

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Business

Accounting

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

CASE 3 (6 marks):
The following graph shows the efficient frontier for the portfolio containing x, y and z
securities
EFFICIENT FRONTIER
0.00525
D
0.00475
В
A
0.00425
W 0,00375
0.00325
0.00275
0.006
0.0065
0.007
0.0075
0.008
0.0085
op
3 а)
Which
combination of the portfolio is most efficient or the closest to optimal, A, B, C or D and
why? Additionally, explain the difference between each of these portfolios.
3 b) If the star represents portfolio E, is it better than B? Explain why or why not.
3 c) If the triangle represents portfolio F, is it better than C? D? Explain why or why not.
ERP

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