T4

Question 1

Risk Aversion

Answer 1

Risk averse : All else equal, investors prefer lower risk.
Risk neutral: Investors are concerned only with returns and are indifferent about the risk involved.
Risk seeker (lover): All else equal, investors prefer higher risk.

Question 2

Indifference curves

Answer 2

Equally preferred asset will lie in the mean-standard deviation plane on an indifference curve, which connects all combinations with the same utility value.
Each curve represent different utility level for a fixed aversion parameter A
Indifference curves for an investor do not cross each other.