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 the above.

Question

Quizplus · Accepted Answer

The indifference curve of a risk-averse investor represents the combination of expected return and standard deviation of returns that results in the same level of utility (satisfaction). Therefore, it is the locus of portfolios that offer the same utility according to returns and standard deviations. Option A is incorrect because it mentions only the expected rate of return, while ignoring the standard deviation of returns. Option B is incorrect because it mentions only the standard deviation of returns, while ignoring the expected rate of return. Option D is incorrect because it mentions "increasing utilities," while indifference curves represent constant utility.

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