According to Modern Portfolio Theory (MPT), portfolios below the efficient frontier are not efficient because:

Modern Portfolio Theory (MPT) and the Efficient Frontier

The efficient frontier represents portfolios that offer the highest return for a given level of risk.

Portfolios below the frontier are inefficient because they provide lower returns for the same level of risk or higher risk for the same level of return.

Why the Answer is D

Portfolios below the efficient frontier are suboptimal; the investor is not maximizing return relative to the risk taken.

ICWIM Study Guide, Chapter on Portfolio Theory: Discusses the efficient frontier and inefficiency of suboptimal portfolios.

MPT Literature: Explains risk-return optimization.

References