Question: Question 1 (19 Marks) Given the following Utility function: U=E(r)1/2A2 a. Draw the indifference curve in the expected return-standard deviation plane corresponding to a utility

 Question 1 (19 Marks) Given the following Utility function: U=E(r)1/2A2 a.

Question 1 (19 Marks) Given the following Utility function: U=E(r)1/2A2 a. Draw the indifference curve in the expected return-standard deviation plane corresponding to a utility level of 0.12 for an investor with a risk aversion coefficient A=4. 8 marks Suggestion: Choose several possible standard deviations ranging from 0 to 0.25, and find the expected rates of return E(r) providing a utility level of 0.12. Then plot the expected return-standard deviation points so obtained. b. Draw the indifference curve corresponding to a utility level of 0.12 for an investor with risk aversion coefficient A=2.5. 8 marks c. Compare the indifference curve of a more risk-averse investor in 1 (b) with the indifference curve in 1(a)? Briefly explain

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!