Consider the Following Probability Distribution for Stocks a and B

Consider the following probability distribution for stocks A and B: $\begin{array}{cccc}\text { State } & \text { Probability } & \text { Return on Stock A } & \text {Return on Stock B } \\1 & 0.10 & 10 \% & 8 \% \\2 & 0.20 & 13\% & 7\% \\3 & 0.20 & 12\% & 6\% \\4 & 0.30 & 14\% & 9\% \\5 & 0.20 & 15\%& 8 \%\end{array}$
Which of the following portfolio(s) is(are) on the efficient frontier?

A) The portfolio with 20 percent in A and 80 percent in B.
B) The portfolio with 15 percent in A and 85 percent in B.
C) The portfolio with 26 percent in A and 74 percent in B.
D) The portfolio with 10 percent in A and 90 percent in B.
E) A and B are both on the efficient frontier.

Correct Answer:

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