kant Wrote: ------------------------------------------------------- > Return still increases. Risk goes up by 1, Return > goes up by .0000000000000000000001. > > Return still goes up per unit of risk, no matter > how small that increase is. Kant, read the question. It’s not asking whether return increases. It’s asking what will happen to the SLOPE and the return PER UNIT OF RISK. Have you ever calculated the slope in algebra? The change in the y axis value over the change in the x axis value? It’s a ratio!
Kant Return goes up, but if it goes up less than the amount of risk then the amount of return per unit of risk is actually decreasing
No, it is only asking about the expected return for risk, NOT what happens to the slope of the expected return for risk. AHA, in there lies how a question is read.
I’m just trying to justify how they could have been reading it based on what tvpm wrote as the explanation of the answer. I looked up the answer on the feedback thing and this is what it says: The efficient frontier is curved. As an investor moves up the curve, risk increases and the slope decreases. The decreasing slope means that adding equal increments of risk provide diminishing increments of expected return. So they are saying the answer is D, not C.
thats what i am talkin about, okay so we are in agreement, i get to move my score upward? Good discussion yall, back to FSA-Taxes and Liabilities for me
Do you guys want me to post the explanation from the answer sheet? You being inconsistent when you say the slope decreases but expected return PER risk increases. What does PER mean? If you increase risk by 1%, what is the increment in return when the slope of the efficient frontier curve is DECREASING? Come on people, you just need to know a little algebra here.
under markovitz approch risk and return move in the same direction
Guys the slope of the curve and the risk/return ratio are equivalent…they have to be moving in the same direction. You can eliminate B and C right away…if you remember the shape of the curve then you are left with D. You can think of it as “diminishing returns of risk” if that helps at all I don’t think this question should have generated this many posts!