Utility and Risk Preferences Part 2 - Indifference Curves

[@Shafique96]

you are all welcome

[@user-lb3ij4fl8o]

nice presentation， thank you!!

[@anindadatta164]

Generally, indifference curve is more suitable for representing utility derived from consumption of goods, as increase of income(budget line) causes upward shift in curve indicating obvious increase in net utility derived. While applying the the indifference curve concept to return expectation and std deviation, how borrowing money would shift the curve upwards for a same person is not clear. This return -risk indifference curve will be flatish for a risk taker but the curve would start from a higher level on Y -axis at X(risk) equal to zero. For a risk averse investor , the curve will start at lower level on Y-axis but would be more upward sloping. The CAPM line should be fitted to that indifference curve

[@abdullahal-hazzani9882]

Thanks

[@arunimagoel4773]

Thank you. You are awesome.

[@josephanderson2018]

Really helpful video!

[@MrHugosky1]

Hello professor Moy. I love your videos, and I have the two following questions:1) Is there a theory calculating a Risk Aversion coefficients using the "Returns" and the "Standard Deviation" instead of the utility function and the wealth variables?2) Could you please tell me which bibliography you used in your explanation about "Indifferences Curves for Various Types of Investors"? (explanation on minute 2:46). Thank you very much in advance for your assistance.

[@abdulrazzaq9726]

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[@anumhussain8473]

Thank you!

[@annamarie9529]

Thank you so much!

[@BuggKnuckle]

how do you plot this in excel based on quadratic utility

[@tatyana89bond]

Thank you!:)

[@rgirotto]

Hi Ronald, first i want to thanks for the video. Just a question: shouldn't y-axis be described as "Marginal increase in expected return" ? I´m saying this because i understand that risk lovers are those who accept a lower sharpe ratio for a increased expected return. best regards

[@kalpanaruwanthika8690]

nice

[@jithinjoykochumalayil8442]

is the CML line means the investor can buy more securities by borrowing money and can find an optimal portfolio on the highest utility curve

[@RonaldMoy]

Yes. The market portfolio is the "best portfolio." By borrowing money, an investor can buy more of this portfolio and based on their preferences, can reach a higher indifference curve.

[@jithinjoykochumalayil8442]

Ronald Moy Thanks man. you really got the skill. one more doubt, if the investor lends his money to gov stocks his portfolio would be on the beginning of CML. When he add more risky investments into the portfolio he will move up in the CML. is this right.,?

[@RonaldMoy]

Yest, that's true.