Mean–variance dominance

EXERCISE 01

Pair	Portfolio 1: return / variance	Portfolio 2: return / variance
A / B	14% / 400	13% / 441
J / K	20% / 529	20% / 400
R / S	8% / 225	9% / 225
X / Y	12% / 380	15% / 460

Variances are in squared percentage-point units.

A.Choose the preferred portfolio when dominance is sufficient.

A.

A dominates B; K dominates J; S dominates R. X and Y involve a risk–return trade-off, so the choice depends on preferences and the rest of the available opportunity set.