In a mean-variance framework, where is the minimum volatility portfolio located on the efficient frontier?

• A. Rightmost point
• B. Leftmost point
• C. Center point
• D. Above the frontier

Answer: (B)

In a mean-variance framework, the minimum volatility portfolio is located at the leftmost point on the efficient frontier. This position represents the portfolio with the lowest level of risk (volatility) for a given set of expected returns. The efficient frontier itself consists of portfolios that provide the highest expected return for a given level of risk, and as risk increases, expected returns generally increase as well.

The leftmost point indicates that this portfolio is highly efficient in terms of risk aversion, as it has the least amount of variability in returns. Investors seeking to minimize risk without regard to return should consider this portfolio, as it is optimal for those who prioritize capital preservation.

In contrast, the rightmost point reflects portfolios with the highest expected returns, but these come with higher volatility. The center point is not relevant in this context, as there are no portfolios that exist there in the standard mean-variance analysis, as it would imply a combination of different assets resulting in indeterminate outcomes. Being located above the frontier is not feasible since all portfolios on the efficient frontier lie within the constraints of risk and return as defined by the market. Therefore, the leftmost point is where the minimum volatility portfolio is accurately situated on the efficient frontier.