Chapter 6, Problem 3CP

Summary Introduction

To think critically about: The representation of the Variable (A) in the Utility Formula among the given terms such as Investor’s return of investment; Investor’s aversion to risk; Certainty equivalent rate of portfolio; preference for one unit of return per four units of risk.

Introduction:

Risk averse investor: There is strong reality in the market that a higher risk gives more returns than a lower risk. Sometimes, some investors prefer investing in something which gives lower return and its risk are known instead of getting higher returns for unknown risks. A person with this type of thought is known risk averse investor.