Tutorial 2 Flashcards
Why are indifference curves of typical investors assumed to slope upward to the right?
Because they are assumed to be risk averse
Why are the indifference curves of more risk-averse investors more steeply sloped than those of less risk averse investors?
More risk averse requires more return per unit of risk
On an indifference curve map indicate 3 portfolios of different utility. Which portfolio has the highest utility?
The portfolio farthest north west will have the highest utility.
a) What are the expected rates of return for stocks X and Y?
b) What are the standard deviations of returns on stocks X and Y?
c) Assume that of your $10,000 portfolio, you invest $9,000 in stock X and $1,000 in stock Y. What is the expected return on your portfolio?
Both the covariance and the correlation coefficient measure the extent to which the returns on securities move together. What is the relationship between the two statistical measures? Why is the correlation coefficient a more convenient measure?
