Question

What do you understand by efficient portfolio and efficient frontier?

Answer 1

Hi,

An efficient portfolio is normally referred to as the one that lies most on efficient frontier.

Efficient portfolio normally lowers risk level which is normally for a given level of expected return.

When the portfolio is efficient what happens is that portfolio with a higher return is not very easy to construct.

Answer 2

A portfolio that provides the highest expected return for a given level of risk or one with the lowest level of risk for a given expected return is known as efficient portfolio.

Different set of portfolio brings out different levels of return. The efficient frontier represents the best of these portfolio combinations that produce the maximum expected return for a given level of risk.