CFA Practice Question

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CFA Practice Question

Risk-averse investors may choose different efficient portfolios because some ______

A. have better information than others.
B. have higher risk tolerance than others.
C. prefer high risk and low expected returns.
Correct Answer: B

Each portfolio along the efficient frontier has a different risk-return combination, and each could appeal to a particular investor and her degree of risk aversion.

User Contributed Comments 6

User Comment
julescruis A is irrelevant here.
chamad and so is C. Risk averse do not prefer high risk
hannovanwyk could A not be true? If the investor has better info, he would understand his risk better and therefore he might decide to undertake such a risk
Nightsurfer This model assumes complete market efficiency (perfect information). Therefore, no investor can know more than any other. By consequence, they all have the same expectation of return.
michlam14 for c, i don't think anyone will want high risk low return? risk seeking will also want high return for high risk, but just doesnt seek as much premium as a risk averse person for taking risk?
johntan1979 Nightsurfer is right. Go review the chapter on EMH.
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