A portfolio of assets has lower risk than holding one asset, but the same expected return and higher transaction costs. Which of the following statements is most correct?
A) The portfolio is attractive to people who are risk-averse and risk-neutral, but not to risk seekers.
B) The portfolio is attractive to investors who are risk-neutral.
C) The portfolio is not attractive to investors who are risk-neutral.
D) The portfolio is attractive to investors who are risk seekers.

Question

Quizplus · Accepted Answer

Risk-neutral investors are indifferent to risk and focus solely on expected returns. Since the portfolio has the same expected return but higher transaction costs, it is not attractive to them.

A Portfolio of Assets Has Lower Risk Than Holding One