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Basic Question 10 of 16
Consider a risky portfolio, P, with an expected rate of return of 0.15 and a standard deviation of 0.15, that lies on a given indifference curve. Which one of the following portfolios might lie on the same indifference curve?
B. E(r) = 0.15; Standard deviation = 0.10
C. E(r) = 0.10; Standard deviation = 0.10
D. E(r) = 0.20; Standard deviation = 0.15
A. E(r) = 0.15; Standard deviation = 0.20
B. E(r) = 0.15; Standard deviation = 0.10
C. E(r) = 0.10; Standard deviation = 0.10
D. E(r) = 0.20; Standard deviation = 0.15
User Contributed Comments 7
| User | Comment |
|---|---|
| aniketcpp | any explnataion?? |
| johntan1979 | Look at the graph, you'll understand better. |
| jonan203 | think of any curve with a slope, if P shared a curve with A, B or D, the curve wouldn't be a curve anymore. plot each portfolio on some graph paper and you'll see why. |
| davcer | sharpe ratio or slope is what matters |
| Kevdharr | If standard deviation goes up, then the expected return must go up. So A is wrong... If standard deviation goes down, then expected return must go down. So B is wrong and C is correct. If standard deviation remains the same, then the expected return must also remain the same. So D is wrong... |
| UcheSam | Good one @Kevdhair, that was the principle I used. |
| Pooja999 | @Kevdharr thanks! |
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CFA® 2025 Level I Curriculum, Volume 2, Module 1.