An investor's degree of risk aversion will determine his or her ________.
A) optimal risky portfolio
B) risk-free rate
C) optimal mix of the risk-free asset and risky asset
D) capital allocation line

Question

Quizplus · Accepted Answer

An investor's degree of risk aversion will determine the optimal mix of the risk-free asset and risky asset in their portfolio. This is known as the investor's optimal portfolio, which is the mixture that maximizes the investor's utility given their risk preference. The optimal risky portfolio (A) and capital allocation line (D) are also important components of the investor's portfolio, but they are not directly determined by the investor's degree of risk aversion. The risk-free rate (B) is a given rate in the market, not influenced by the investor's risk aversion.

An Investor's Degree of Risk Aversion Will Determine His or Her