Please, help me understand what is indifference curve. What is it? I am reading about it, but can’t get the basic concept… Thank you
Each investor has an indifference curve. What does this mean? It is the set of portfolios on the risk-return plane that the investor views as equal. Take Portfolio A, which will produce an expected level of return for a given level of risk. Portfolio B takes on slightly more risk and the expected return is slightly more. The investor views Portfolio A & B as equal. He/she is indifferent between the two. So the indifference curve is the collection of all of these “equal” portfolios.
An indifference curve is a graph showing different bundles of goods, each measured as to quantity, between which a consumer is indifferent. Example: you drink Pepsi and coke; so at a given point of time it doesn’t matter if you drink coke or Pepsi in other words you can drink any of the two. The amount of drinks that you take is fixed (lets say 3 cans), so 1 can of coke or 2 cans of Pepsi or 0 coke and all 3 Pepsi cans. You can drink any combination of Pepsi and coke as long as you drink 3 cans in total. You are indifferent between various combination of Pepsi and coke.
Thanks a lot for explanations. Now it makes so much more sense:-)