A set of convex indifference curves indicates which one of the following about an investor's tradeoff between risk and expected returns?
A) An investor requires an increasingly larger increment of expected return for each additional unit of risk incurred.
B) An investor derives less additional satisfaction from each extra dollar earned.
C) Portfolios on two separate indifference curves would be equally attractive to the investor.
D) Risk averse investors require higher expected returns.

Question

Quizplus · Accepted Answer

A set of convex indifference curves indicates that the investor requires an increasingly larger increment of expected return for each additional unit of risk incurred. This is because the curve becomes steeper as we move downwards and to the right, indicating that the investor needs to be compensated with greater expected returns for taking on higher levels of risk.

A Set of Convex Indifference Curves Indicates Which One of the Following