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i understand risk averse investor pls explain what is most-risk averse inv and less-risk averse investor and pls explain optimal portfolio

Answers (4)

Sriram Somayajula Admin

PSL share screenshot of what you are referring to from Kaplan material will be useful to respond

With respect to utility theory, the most risk-averse investor will have an indifference curve with the: A.most convexity. B.smallest intercept value. C.greatest slope coefficient. in this question the term most risk averse investor i didt understand same way in lot of question they say less risk averse investor

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Dhakshana DhakshanaWith respect to utility theory, the most risk-averse investor will have an indifference curve with the: A.most convexity. B.smallest intercept value. C.greatest slope coefficient. in this question the term most risk averse investor i didt understand same way in lot of question they say less risk averse investor

and pls explain what is utility theory??

Thread Starter

Dhakshana Dhakshanaand pls explain what is utility theory??

Most risk average means a very safe investor - a very safe investor will not tolerate risk i.e for small risk they want great return - i.e the utility that they require from small risk is very high Utility curves plot satisfaction derived from consumption of something In Portfolio Management if we plot utility curves for SD on x axis and Retrun on Y axis, then people who are more risk averse will have utility curves towards left that is more steep and people who are less risk averse that is are willing to take risk have indiferrence curves towards the right ( look at image attached) Now if utility curve is steep i.e the slope is highest The way to understand it is if eq of a line is y = mx + c Where y is desired return and m is slope, c is intercept and x is sd Then for a given SD, an investor with who is more risk averse i.e who hates risk will want more return so slope will be very high So answer will be c