Do real professionals use the difference curve? Its just a bunch of made up numbers. How do you determine the one stocks utility to another or risk or return. Everything is a guess. Seems like an extremely good way to get something wrong? I guess you do need some rule of thumb and you could sort relatively to one another but I'm not sure it seems useful still. Am I miss understanding something?
Hi sir, I have a doubt.. for an investor Risk Aversion would be one specific no., risky asset standard deviation is given here in this case.. then @ 0 Risk Utility should be equal to Risk Free Return. How come there are various Indifference curves for the same investor (time 23:12)?
Different IC curves represent different utility levels. As the investor moves north-west, he is happier as his utility increases. Risk is compensated with higher returns and it signifies higher risk aversion. IFT Support Team
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I think I missed a section of the video under 'Investment Characteristics of Assets'- Variance and Covariance of Returns - is this removed?
Do real professionals use the difference curve? Its just a bunch of made up numbers. How do you determine the one stocks utility to another or risk or return. Everything is a guess. Seems like an extremely good way to get something wrong? I guess you do need some rule of thumb and you could sort relatively to one another but I'm not sure it seems useful still. Am I miss understanding something?
Im probably just missing something very basic but how are you calculating the 6.25% and 7.5% at time 19:50? thanks in advance xx
Rp = weighted average fof two assets à (0.25*0.10) + (0.75*0.05)= 6.25%
and (0.5*0.10) + (0.5*0.05) = 7.5%
IFT support team
Hi sir, I have a doubt.. for an investor Risk Aversion would be one specific no., risky asset standard deviation is given here in this case.. then @ 0 Risk Utility should be equal to Risk Free Return. How come there are various Indifference curves for the same investor (time 23:12)?
Different IC curves represent different utility levels. As the investor moves north-west, he is happier as his utility increases. Risk is compensated with higher returns and it signifies higher risk aversion.
IFT Support Team
No variance and covariance as per table of contents? :(
I think you are making the videos in rush, or not able to properly explaining the equations
Please tell us which portion you think is incomplete. Send details on support@ift.world
IFT support team
@@IFT-CFA from 17mins onwards application of utility theory I had a tough time and didn't fully understand.
I totally agree with you
I think it's fine tbh. Slow down, grasp the concepts... Try to apply the formulas on your own, don't just watch the video
the Y axis should be utility, Not the expected return?