About the lead, at right angles in the middle, at right angles at the end.
Work Step by Step
As distance increases between most of the mass and the rotational axis, the rotational inertia increases. When rotation is about the lead, the mass is very close to the axis and rotational inertia will be the least. When the axis is at a right angle to the pencil at the middle, the rotational inertia increases, and then it increases even more when the axis is at a right angle at the end of the pencil because some of the mass is very far from the axis. This is discussed on pages 136-138.