1. Which of the following is TRUE about the mean-variance criterion?

Select one:

a. When the degree of risk aversion A > 0, the investor is risk loving.

b. When the degree of risk aversion A = 0, the investor does not care about the expected return of an investment.

c. When the degree of risk aversion A < 0, the investor is risk averse.

d. The certainty equivalent is the utility score of an indifference curve.

e. The indifference curves of a particular mean-variance investor intersect one another at different levels of utility.

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2. In a hypothetical financial market, there are two stocks and a risk-free asset. If mean-variance investors (with risk aversions A > 0) are ONLY allowed to own one stock together with the risk-free asset, which of the following statement is TRUE?

Select one:

a. An investor with a higher A, compared to another investor with a lower A, will choose the stock with higher expected return.

b. An investor with a higher A, compared to another investor with a lower A, will choose the stock with lower standard deviation.

c. An investor with a higher A, compared to another investor with a lower A, will choose the stock with higher Sharpe ratio.

d. An investor with a higher A, compared to another investor with a lower A, will choose the stock with lower Sharpe ratio.

e. I cannot find a correct statement.