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A and B are efficient portfolios. Then,
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C. if A has a higher expected return, it must have a lower risk.
Answer: B
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An efficient frontier is made up of portfolios which have the highest expected return for a given level of risk and the lowest level of risk for a given level of expected returns. Hence, if A has a higher expected return, it must have a higher risk. However, this does not mean that A cannot have a higher risk-to-reward ratio. Finally, a combination of two efficient portfolios is always efficient (property of the frontier).


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