- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 52. Portfolio Risk and Return: Part I
- Subject 4. Risk Aversion and Portfolio Selection
CFA Practice Question
When graphing investor utility to show the tradeoff of risk and return, the utility curves of more risk-averse investors are ______.
A. steeper and facing up and to the left
B. flatter and facing up and to the left
C. steeper and facing up and to the right
Explanation: Utility curves for any risk-averse investor face up and to the left; the more risk-averse, the steeper the slope.
User Contributed Comments 10
| User | Comment |
|---|---|
| aero | I am not american. What is facing up and to the left....? |
| justin | northwestern. |
| MGM13 | Think of the letter C lying on its side tangent to the efficient frontier. It is "face up". Where it lies along the EF determines how risk averse an investor is. To the left of the highest tangent point on the EF is more risk averse. To the right are investors willing to take on more risk. Hope this helps. |
| americade | "facing up to the left" really should say "sloping right" it's enough to know the info without the word games |
| dealsoutlook | does return go on the x axis or does risk go on the x-axis?? |
| uberstyle | risk on x |
| StanleyMo | The slope become steeper as more risk averse investor requests higher return with the same risk. |
| jgraham6 | americade is right! Plot the graph for yourself and see. Expected return on y-axis, risk on the x-axis. As risk increases, the expected return increases. hence the curve is upward sloping to the right |
| boddunah | response to facing up and to the left. -----northwestern-----hillarious. rofl |
| farhan92 | i got my left and right mixed up :/ |