To build an indifference curve, we can first find the utility of a portfolio with 100% in the risk-free asset, then

Question

Quizplus · Accepted Answer

To build an indifference curve, we need to keep the utility constant and change either the expected return or standard deviation of the portfolio. Since we already know the utility of a portfolio with 100% in the risk-free asset, we can change the standard deviation of the portfolio (by adding risky assets) and find the expected return the investor would require to maintain the same utility level. This will give us a set of points which we can use to plot the indifference curve. Therefore, the correct choice is D.

To Build an Indifference Curve, We Can First Find the Utility