A risk-return trade-off function
A) shows the minimum expected return required to compensate an investor for accepting various levels of risk.
B) slopes upward for a risk-averse decision maker.
C) is horizontal for a risk-neutral decision maker.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

The risk-return trade-off function indeed shows the minimum expected return required for different levels of risk, slopes upward for risk-averse decision makers (indicating they require higher returns for higher risk), and is horizontal for risk-neutral decision makers (indicating they do not require higher returns for taking on more risk).

A Risk-Return Trade-Off Function