Correct Answer: C. Expected return 11%, Standard deviation 8
Rationale: According to modern portfolio theory (MPT), the investment opportunity set consists of all available risk-return combinations. Standard deviation is the measure of volatility used in MPT. Assuming a normal distribution of returns, 68% of all returns will fall within one standard deviation of the mean return and 95% of all returns will fall within two standard deviations of the mean return. An efficient portfolio is a portfolio that has the highest possible expected return for a given standard deviation. In this question, the highest expected return with the lowest standard deviation is 11% and 8.