✅ Correct Answer: A — Portfolio W

📌 Understanding the Portfolio Possibilities Curve

A portfolio possibilities curve (or efficient frontier) shows all possible combinations of two assets—in this case, stocks and bonds—and their associated risk and return.

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🔍 Step 1: Identify the Endpoints

• Point Y → 100% bonds
  • Lowest expected return
  • Lower risk
• Point Z → 100% stocks
  • Highest expected return
  • Highest risk

Moving from Y to Z increases the allocation to stocks.

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🔍 Step 2: Locate a 90% Stock / 10% Bond Portfolio

• A 90% stock allocation is very aggressive and should lie close to the 100% stock endpoint (Z).
• Point W is just slightly away from Z, reflecting a small bond allocation.
• This makes W the best match for a 90% stocks / 10% bonds portfolio.

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❌ Why the Other Options Are Incorrect

• X: Typically the Minimum Variance Portfolio, with a more balanced asset mix.
• Y and Z: Represent 100% allocations, not a mix.

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🧠 Key Takeaway

Higher stock weights push portfolios closer to Z.
A small bond allocation shifts the point slightly inward—exactly where W lies.