In the mean-standard deviation graph,which one of the following statements is true regarding the indifference curve of a risk-averse investor?
A) It is the locus of portfolios that have the same expected rates of return and different standard deviations.
B) It is the locus of portfolios that have the same standard deviations and different rates of return.
C) It is the locus of portfolios that offer the same utility according to returns and standard deviations.
D) It connects portfolios that offer increasing utilities according to returns and standard deviations.
E) none of these.

Question

Quizplus · Accepted Answer

The indifference curve of a risk-averse investor represents the combinations of expected return and standard deviation that provide the same level of utility for the investor. Therefore, option C is the correct answer. Option A is incorrect because it only considers portfolios with the same expected return, while option B only considers portfolios with the same standard deviation. Option D is incorrect because it suggests that the indifference curve indicates increasing utility for both returns and standard deviations, which is not necessarily the case for a risk-averse investor.

In the Mean-Standard Deviation Graph,which One of the Following Statements