Mini test #2

Given the information in the table for Portfolios A, B, and C, and a target return of 3%, which portfolio has the lowest shortfall risk?

A) Portfolio A.

B) Portfolio B.

C) Portfolio C.

Explanation
The portfolio with the lowest probability of returns less than 3%, is the one with the highest safety-first ratio.

Safety-first ratio Portfolio A: (13 − 3) / 6.1 = 1.64 Safety-first ratio Portfolio B: (9 − 3) / 3.6 = 1.67 Safety-first ratio Portfolio A: (15 − 3) / 7.2 = 1.67

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