Deck 1 – Portfolio Risk & Return: Part I

How does the utility function $U=E(R)-\frac{1}{2}A{\sigma }^2$ reflect risk aversion?

Higher $A$ penalizes variance more heavily.

For two portfolios with the same expected return, which one does a risk-averse investor prefer?

The portfolio with lower variance.

What defines the global minimum-variance portfolio?

It is the portfolio on the frontier with the lowest possible variance.

How does the efficient frontier differ from the minimum-variance frontier?

It is the upper portion offering highest return for each risk level.