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Basic Question 12 of 16
Which contributes to higher utility, according to the utility theory (for a typical investor)?
II. Higher variance
III. Higher risk-aversion coefficient
I. Higher return
II. Higher variance
III. Higher risk-aversion coefficient
User Contributed Comments 3
| User | Comment |
|---|---|
| gill15 | Why isnt III correct? Higher the value of A the lower the utility score (High positive A from notes is Risk Averse ---- Low utility is less tolerance to risk) |
| gill15 | Never mind... |
| khalifa92 | Utility theory = Expected return - ( 0.5*var*A) those are subtracted contribute to lower utility |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
explain risk aversion and its implications for portfolio selection
CFA® 2025 Level I Curriculum, Volume 2, Module 1.