Modern Portfolio Theory (MPT) emphasizes:

A Individual stock selection

B Diversification to optimize the risk-return trade-off using asset correlations

C Concentrated positions

D Market timing

✓ Correct Answer: Option B

MPT (Markowitz): combine assets with imperfect correlations to achieve the efficient frontier—maximum return for given risk.

💡 Why is B) the correct answer?

The correct answer to the question "Modern Portfolio Theory (MPT) emphasizes:" is Option B: Diversification to optimize the risk-return trade-off using asset correlations.

The other options — A) Individual stock selection, C) Concentrated positions, D) Market timing — are incorrect for this CFA Exam Prep question. As explained above: MPT (Markowitz): combine assets with imperfect correlations to achieve the efficient frontier—maximum return for given risk.

📚 About This CFA Exam Prep Practice Question

This 2-level CFA Exam Prep question from the Portfolio Management topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free CFA Exam Prep practice test or use flashcards for spaced repetition review.

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Modern Portfolio Theory (MPT) emphasizes:

✓ Correct Answer: Option B

📚 About This CFA Exam Prep Practice Question

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