The graph below shows the envelope frontier. Based on the graph below do you agree with the statement "Portfolio P(1) and P(2) are two efficient portfolios"? Explain your answer. Portfolio Means and Returns 17% ? 15% 13% Portfolio expected retrun Efr.) 11% P(1) 00 9% P(2) 7% ? 5% 30% 35% 40% 45% 70% 75% 8096 85% 50% 55% 60% 65% Portfolio Standard deviation ,

Portfolio P(1) and P(2) are NOT efficient portfolios.

Efficient portfolios will be along the line AB. On this line, the portfolios have higher returns  for the same Standard deviation.

Portfolio P(1) has Risk measured as  Standard Deviation of 65% and Return of 10%. But an efficient portfolio with same risk will have return of 13%. Hence P(1) is not an efficient portfolio

Portfolio P(2) has Risk measured as  Standard Deviation of 55% and Return of 8%. But an efficient portfolio with same risk will have return of 12%. Hence P(2) is not an efficient portfolio.