Question

Consider a risky portfolio, A, with an expected rate of return of 0.16 and a standard deviation of 0.16, that lies on a given indifference curve. Which one of the following portfolios might lie on the same indifference curve?

	A.	E(r) = 0.15; Standard deviation = 0.20
	B.	E(r) = 0.10; Standard deviation = 0.10
	C.	E(r) = 0.10; Standard deviation = 0.20
	D.	E(r) = 0.16; Standard deviation = 0.10
	E.	E(r) = 0.20; Standard deviation = 0.15

Answer 1

The risk- reward ratio of Portfolio A is = .16/.16 i.e. 1. The risk reward ratio of portfolio B is also 1.

Therefore, portfolio B with E(r) = .10 and standard deviation =0.10 lie on the same indiffernce curve.

Portfolio	Return	Standard Deviation	Risk Reward Ratio (Standard Deviation / Return)
A	0.15	0.20	1.33
B	0.10	0.10	1.00
C	0.10	0.20	2.00
D	0.16	0.10	0.63
E	0.20	0.15	0.75

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