Capital Market Theory

According to the capital market theory, the optimal portfolio for an investor is _most likely_ to:

Incorrect. The market portfolio is the optimal risky portfolio. According to the capital market theory, an investor's optimal portfolio is some combination of the market portfolio and the risk-free asset.

Incorrect. An optimal portfolio provides the highest return for a given level of risk. It cannot maximize return while simultaneously minimizing risk.

Exactly! The optimal portfolio is the one that allows an investor to gain the maximum possible level of utility or satisfaction. This happens when the portfolio lies on the highest possible indifference curve given the opportunity set, which lies tangent to the capital market line (CML). Investors would like to select an investment on an even higher indifference curve, but such an opportunity does not exist.

be the market portfolio.

lie on the highest feasible indifference curve.

provide the highest return with the lowest level of risk.