Risk versus return is an old adage on wall street

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Risk versus Return is an old adage on Wall Street. If higher expected returns are a “good” and greater risk of loss is a “bad,” what does a typical investor’s risk-return indifference map look like?

Suppose you have two investors: Investor A finds herself mostly in low risk municipal and federal bonds. Investor B finds herself mostly in high risk stocks. If you were to ask Investor A if she would be willing to invest in a 1% riskier portfolio would she require more or less expected returns compared to if Investor B was asked to invest in a 1% riskier portfolio? In other words, who would require greater returns from the change in investments and why?

Reference no: EM131083157

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