4) Consider investors with preferences represented by the utility function U E(r) – Ao². (a) Draw the indifference curve representing a utility level of 10% for an in- vestor with a risk aversion parameter A = 3 in expected return-standard deviation space. (b) In the same graph, draw the indifference curve representing a utility level of 15% for an investor with a risk aversion parameter A = 3. (c) In the same graph, draw the indifference curve representing a utility level of 10% for an investor with a risk aversion parameter A = 5.

4) Consider investors with preferences represented by the utility function U E(r) – Ao². (a) Draw the indifference curve representing a utility level of 10% for an in- vestor with a risk aversion parameter A = 3 in expected return-standard deviation space. (b) In the same graph, draw the indifference curve representing a utility level of 15% for an investor with a risk aversion parameter A = 3. (c) In the same graph, draw the indifference curve representing a utility level of 10% for an investor with a risk aversion parameter A = 5.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

100%

4) Consider investors with preferences represented by the utility function U =
E(r) – Ao².
(a) Draw the indifference curve representing a utility level of 10% for an in-
vestor with a risk aversion parameter A = 3 in expected return-standard
deviation space.
(b) In the same graph, draw the indifference curve representing a utility
level of 15% for an investor with a risk aversion parameter A = 3.
(c) In the same graph, draw the indifference curve representing a utility
level of 10% for an investor with a risk aversion parameter A = 5.

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