Describe how the investor curves would appear

Reference no: EM132178133

Question - Suppose that a government bonds pay 5% in a riskless fashion. Also suppose that stocks investments could pay 10% but with considerable risk. Suppose a 50:50 blend between the two investments would pay 7.5% (but would carry risk). Although each investor's view on risk differs, the current investor's indifference curves for these investments are shown in the chart below for an investment of $1 million. How should this investor allocate the funds between these 2 investments? Why do the curves slope upward and to the right when we've seen that most, if not all, slope downward? Describe how the investor's curves would appear if the 50:50 strategy was adopted, but would not accept any additional return.

Reference no: EM132178133

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