Question

The graph to the right shows the budget line and indifference curves for two investors, A and B. Labels with the subscript 'm' refer to the stock market as a whole. Which of the following correctly interprets the graphical analysis? O A. B is more risk averse than A. Although both investors are risk averse and will want to invest in a mixture of stocks and risk-free T-bills, A will invest a greater portion of her wealth in stocks. Expected return OB. A is more risk averse than B. While A will invest in a mixture of stocks and risk-free T-bills, B will want to invest more than 100 percent of her wealth in stocks. O C. A is more risk averse than B. Although both investors are risk averse and will want to invest in a mixture of stocks and risk-free T-bills, B will invest a greater portion of her wealth in stocks. O D. B is more risk averse than A. While B will invest in a mixture of stocks and risk-free T-bills, A will want to invest more than 100 percent of her wealth in stocks. Om B Standard deviation of return

Answer 1

The correct option is B.

The statement which correctly describes the graphical analysis is B.) A is more risk averse than B. While A will invest in a mixture of stocks and risk-free, T-bills. B will want to invest more than 100 percent of her wealth in stocks.