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 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.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 13QTD
Related questions
Question
![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)
E[R]
Figure (1) shows an investor with a conservative investment behavior.
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.
0.05 0.1 0.15
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.
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%2Fe3d16ba3-6908-4bb5-ae3b-544565049ba4%2Fd52eefe6-8561-4bb1-bbc3-a4bb4dc7afa4%2Fmc4fu2.png&w=3840&q=75)
Transcribed Image Text: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)
E[R]
Figure (1) shows an investor with a conservative investment behavior.
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.
0.05 0.1 0.15
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.
Figure 2
0.2
0.25
o(R)
0.3 0.35 0.4 0.45
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