Utility and Portfolio Allocation

The exploration of portfolio construction starts with grouping investors in three categories: risk-averse, risk-neutral, and risk-lover. Most investors are risk-neutral: they require higher returns for higher risks. Nevertheless, how much more return is required for undertaking some more risk differs between this group of investors and the difference is defined by their individual utility scores, a numerical measurement of their desired risk/return tradeoff.

Post by Day 3 a 4- to 8-paragraph evaluation of your own degree of risk-aversion. Please make sure to include responses to the following specific questions:

(1) How do you decide on what criteria to use to assess your own degree of risk-aversion?

(2) What are the top three most important criteria for that assessment and why are they the most important?

(3) Do you think that you are very risk-averse based on your selected criteria, or do you think that your risk-aversion is rather average for investors?

(4) Can you suggest a numerical score for your degree of risk-aversion? How would you construct such a number?

Please address clearly each of the questions in 12 paragraphs. Make sure you use APA style for your response(s) and properly cite any resources you have used.