Question

Let us assume a normal distribution of returns and risk-reverse utility functions. Under what conditions will...

Let us assume a normal distribution of returns and risk-reverse utility functions. Under what conditions will all investors demand the same portfolio of risky assets?​

Homework Answers

Answer #1

Under a normal distribution of returns and risk-reverse utility functions, the investors demand the risky assets portfolio only when investors are risk averse and under such condition investors demand a higher return on investments that have a higher level of risk.

Although the investors are willing to accept a higher level of risk in exchange for a higher rate of return, but this condition does not provide meaning that the investors are less risk averse. On the contrary, the investors will not invest in any risky assets unless the assets compensate them with higher return for taking the higher risk.

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