To Build an Indifference Curve, We Can First Find the Utility

question 24

Multiple Choice

To build an indifference curve, we can first find the utility of a portfolio with 100% in the risk-free asset, then

• A) find the utility of a portfolio with 0% in the risk-free asset.
• B) change the expected return of the portfolio and equate the utility to the standard deviation.
• C) find another utility level with 0% risk.
• D) change the standard deviation of the portfolio and find the expected return the investor would require to
• E) change the risk-free rate and find the utility level that results in the same standard deviation.

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Definitions:

Willingness to Pay

The maximum amount an individual is prepared to spend on a good or service, reflecting their valuation of it.

Consumer Surplus

The difference between the maximum price a consumer is willing to pay for a good or service and the actual price they do pay.

Market Forces

The natural factors of supply and demand that determine prices, production levels, and resource allocation in a freely competitive economy.

Resistance Price

A price level at which an asset meets pressure on its way up due to a concentration of selling interest, often used in technical analysis of financial markets.