# What do you mean by optimal portfolio?

## What do you mean by optimal portfolio?

An optimal portfolio is one designed with a perfect balance of risk and return. The optimal portfolio looks to balance securities that offer the greatest possible returns with acceptable risk or the securities with the lowest risk given a certain return.

## What is tangent portfolio?

The tangency portfolio is the portfolio of risky assets that has the highest Sharpe ratio.

**What is a dominant portfolio?**

Mathematical Models of Modern Portfolio Theory: Use of dominance principle asserts that those assets which show higher expected returns for the given level of risk will be selected. Dominant assets are called efficient portfolios whether they contain two or more assets.

**What is meant by market portfolio?**

A market portfolio is a theoretical bundle of investments that includes every type of asset available in the investment universe, with each asset weighted in proportion to its total presence in the market.

### How optimal portfolio is identified?

The optimal risky portfolio is identified from multiple risk portfolios while ignoring investor’s risk preferences. Each investor identifies his allocation between the risk-free asset and the optimal risk portfolio keeping in view his indifference curve (which depends on his risk preferences, etc.).

### Where is the optimal portfolio?

Investors use both the efficient frontier and the CAL to achieve different combinations of risk and return based on what they desire. The optimal risky portfolio is found at the point where the CAL is tangent to the efficient frontier.

**What is the tangent efficient portfolio?**

The portfolios with the best trade-off between expected returns and variance (risk) lie on this line. The tangency point is the optimal portfolio of risky assets, known as the market portfolio.

**What is Alpha in single index model?**

Alpha is a measure of the performance of an investment as compared to a suitable benchmark index, such as the S&P 500. S&P is a market leader in the. An alpha of one (the baseline value is zero) shows that the return on the investment during a specified time frame outperformed the overall market average by 1%.

## What is market portfolio according to CAPM?

Definition 1 The market portfolio is a portfolio consisting of all securities where the proportion invested in each security correspons to its relative market value. We now know that using the CAPM we can decide whether the market price for a stock is too high or too low by looking at the market portfolio.

## How do you identify a market portfolio?

In order to determine the market portfolio only the expected returns of all individual securities, their standard deviations and the risk-free rate have to be known. But, the market portfolio depends neither on the investors’ individual preferences nor on their individual aversion towards risk.