The risk-return indifference curves for a risk-neutral investor are:
A) vertical lines.
B) straight lines with slope equal to one.
C) horizontal lines.
D) upward sloping lines that are bowed downward.

Question

Quizplus · Accepted Answer

Risk-neutral investors have no preference for higher returns or lower risk, they only care about the absolute level of return. Therefore, their risk-return indifference curves are horizontal lines, indicating that they are indifferent to changes in risk as long as the return stays constant.

The Risk-Return Indifference Curves for a Risk-Neutral Investor Are