Question

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

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

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

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.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
5. Define Capital Allocation Line (CAL) and Capital Market Line (CML) and discuss differences between them.
5. Define Capital Allocation Line (CAL) and Capital Market Line (CML) and discuss differences between them.
Explain why indifference curves cannot intersect.
Explain why indifference curves cannot intersect.
Explain why well-behaved 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...
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...
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...
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...
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...
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 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....
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.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT