To answer this question, let's go through each option to understand why it is correct or incorrect:
Option A) The optimal portfolio for an investor is the portfolio that lies on the efficient frontier and provides her with the greatest level of utility.
This option is correct. The efficient frontier represents a set of portfolios that offer the highest expected return for a given level of risk. The optimal portfolio for an investor is the one that maximizes their utility (satisfaction) based on their risk and return preferences. Therefore, this statement is likely to be correct.
Option B) The optimal portfolio for an investor is found at the point of tangency between the efficient frontier and an investor’s highest utility curve.
This option is correct. The point of tangency between the efficient frontier and an investor's highest utility curve represents the optimal portfolio for that investor. This is where the investor's risk and return preferences align with the available investment opportunities on the efficient frontier.
Option C) A more risk-averse investor will lie inside the efficient frontier but will lie outside the efficient frontier for a less risk-averse investor.
This option is incorrect. A more risk-averse investor will actually lie on a lower portion of the efficient frontier, where portfolios have lower expected returns but also lower levels of risk. A less risk-averse investor will lie on a higher portion of the efficient frontier, where portfolios have higher expected returns but also higher levels of risk. Therefore, this statement is least likely to be correct.
Option D) None of the above.
This option is incorrect because option C is least likely to be correct.
The correct answer is C. This option is least likely to be correct because it incorrectly states that a more risk-averse investor will lie inside the efficient frontier but will lie outside the efficient frontier for a less risk-averse investor.