The following figures show the optimal portfolio choice for two investors with different levels of risk-aversion graphically. Which statement is correct? 0.3 0.3 0.25 0.2 LL 0.15 0.1 0.05 0 0.35 0.4 0.45 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.25 0.2 0.15 0.1 0.05 0 0 Figure 1 0.05 0.1 0.15 0.2 0.25 0.3 o(R) Figure 2 O Figure (2) shows an investor that borrows in risk-free rate and invests in the risky asset. O Figure (1) shows an investor with a conservative investment behavior. O In the optimal point of both figures, the highest indifference curve is tangent to the efficient frontier. O In Figure (1), more aggressive investment decision led to a higher Sharpe ratio. o(R) 0.4 0.45
The following figures show the optimal portfolio choice for two investors with different levels of risk-aversion graphically. Which statement is correct? 0.3 0.3 0.25 0.2 LL 0.15 0.1 0.05 0 0.35 0.4 0.45 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.25 0.2 0.15 0.1 0.05 0 0 Figure 1 0.05 0.1 0.15 0.2 0.25 0.3 o(R) Figure 2 O Figure (2) shows an investor that borrows in risk-free rate and invests in the risky asset. O Figure (1) shows an investor with a conservative investment behavior. O In the optimal point of both figures, the highest indifference curve is tangent to the efficient frontier. O In Figure (1), more aggressive investment decision led to a higher Sharpe ratio. o(R) 0.4 0.45
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 13QTD
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![Question 7
The following figures show the optimal portfolio choice for two investors with different levels of risk-aversion graphically. Which statement
is correct?
E[R]
0.3
0.25
0.2
0.15
0.1
0.05
0
0
0.05 0.1
0.15
Figure 1
0.2 0.25 0.3 0.35 0.4 0.45
o(R)
[a]H
0.3
0.25
0.2
0.15
0.1
0.05
0
0
Figure (2) shows an investor that borrows in risk-free rate and invests in the risky asset.
Figure (1) shows an investor with a conservative investment behavior.
0.05
0.1 0.15
In the optimal point of both figures, the highest indifference curve is tangent to the efficient frontier.
In Figure (1), more aggressive investment decision led to a higher Sharpe ratio.
Figure 2
0.2 0.25
o (R)
0.3
0.35 0.4 0.45](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7cd338bb-3738-4289-b54a-3b7b8416cf99%2F2c38abb4-c8ea-498d-ae5a-1114421b10ed%2F09c9l21_processed.png&w=3840&q=75)
Transcribed Image Text:Question 7
The following figures show the optimal portfolio choice for two investors with different levels of risk-aversion graphically. Which statement
is correct?
E[R]
0.3
0.25
0.2
0.15
0.1
0.05
0
0
0.05 0.1
0.15
Figure 1
0.2 0.25 0.3 0.35 0.4 0.45
o(R)
[a]H
0.3
0.25
0.2
0.15
0.1
0.05
0
0
Figure (2) shows an investor that borrows in risk-free rate and invests in the risky asset.
Figure (1) shows an investor with a conservative investment behavior.
0.05
0.1 0.15
In the optimal point of both figures, the highest indifference curve is tangent to the efficient frontier.
In Figure (1), more aggressive investment decision led to a higher Sharpe ratio.
Figure 2
0.2 0.25
o (R)
0.3
0.35 0.4 0.45
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