Answer to Question #62418 in Microeconomics for Chelsea

Question

Suppose an investor could get a 3% rate of return with no risk, but higher returns require more risk at a constant rate. Draw an investor opportunity schedule and show where a person might maximize utility. Does a person accept some risk?

Answer 1

If an investor could get a 3% rate of return with no risk, but higher returns require more risk at a constant rate, then a person accept some level of risk, which is acceptable for him and provides high enough rate of return. The higher is rate of return, the higher is utility.