Question

Can multiple indifference curves be tangent to one capital allocation line (CAL)? Why or why not?

Answer #1

Yes it is possible. The indifference curve is a compbination of portfolios for an investor that gives him same level of utility for all the combination based on his riks apetite.

There can be 2 investors with different indifference curve (since risk apetite is different and because of these the 2 indifference curve can be tangent to CAL line at different point in the line. Hence multiple indifference curve can be possible.

5. Define Capital Allocation Line (CAL) and Capital Market Line
(CML) and discuss differences between them.

Explain why indifference curves cannot intersect.

Explain why well-behaved indifference curves cannot
intersect.

Why is it that the indifference curves cannot cross? What
assumptions about consumers’ preferences will crossed indifference
curves violate? Draw an indifference curve graph to help illustrate
your answer.

Explain why we assume indifference curves for the choice of
consumption and leisure are convex and not concave (you can use a
graph if it helps to explain your answer).

Construct an indifference curve maps and explain why,
assuming MU>0, that Indifference curves located farther from the
origin represent higher levels of satisfaction.

Question 1
The following are key characteristics of Indifference Curves,
EXCEPT:
A. Each indifference curve identifies the combinations of X and
Y where the consumer is equaly happy.
B. Indifference curves are convex to the origin because X and Y
are assumed to be close substitutes.
C. For any combination of X and Y there is one and only one
Indifference Curve.
D. Indifference curves cannot logically cross between them if
preferences are well defined.
Question 2
The following are...

Given the capital allocation line, an investor's optimal
portfolio is the combined portfolio that
Group of answer choices
maximises certainty equivalence
lies on the lowest achievable indifference curve
invests 100% of total wealth in the optimal portfolio, P
maximises expected profit
minimises risk

The Capital Market Line is derived by drawing a tangent line
from the intercept point on the efficient frontier to the point
where the expected return equals the market rate of return.
Select one:
True
False

1.True or False On a given indifference curve, the marginal rate
of substitution is always decreasing. (Explain your answer)
2 Common fallacies Why are these statements
wrong? (a) Since consumers do not know about indifference curves or
budget lines, they cannot choose the point on the budget line
tangent to the highest possible indifference curve. (b) Inflation
must reduce demand since prices are higher and goods are more
expensive.

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