Answer: sequentially smaller increases in expected return.

## Explanation When moving along the efficient frontier from left to right (increasing risk), the relationship between risk and return is **concave** rather than linear. This means that: 1. **Diminishing marginal returns to risk**: Each additional unit of risk taken provides a smaller incremental increase in expected return compared to the previous unit of risk. 2. **Efficient frontier shape**: The efficient frontier is typically curved (concave) rather than a straight line. As you move to the right: - Initially, taking on small amounts of risk yields relatively large increases in expected return - As you take on more risk, the additional expected return per unit of risk decreases 3. **Mathematical representation**: The efficient frontier's concave shape can be represented by the Markowitz portfolio optimization model, where the risk-return tradeoff exhibits diminishing marginal returns. 4. **Economic intuition**: This makes sense because: - Low-risk portfolios can achieve meaningful diversification benefits - High-risk portfolios are already heavily concentrated in risky assets, so additional risk-taking provides less diversification benefit - Investors require increasingly higher compensation for taking on additional risk beyond certain levels Therefore, option A is correct: "sequentially smaller increases in expected return." This reflects the concave nature of the efficient frontier where the risk-return tradeoff becomes less favorable as risk increases.

Author: LeetQuiz .