microeconomics Individual and Market Demand参考.ppt

INDIVIDUAL DEMAND The Individual Demand Curve An investor is dividing her funds between two assets—Treasury bills, which are risk free, and stocks. To receive a higher expected return, she must incur some risk. The budget line describes the trade-off between the expected return and its riskiness, as measured by the standard deviation of the return. The slope of the budget line is (Rm? Rf )/σm, which is the price of risk. THE DEMAND FOR RISKY ASSETS 5.4 The Investor’s Choice Problem Risk and Indifference Curves Choosing Between Risk and Return Figure 5.6 Three indifference curves are drawn, each showing combinations of risk and return that leave an investor equally satisfied. The curves are upward-sloping because a risk- averse investor will require a higher expected return if she is to bear a greater amount of risk. The utility-maximizing investment portfolio is at the point where indifference curve U2 is tangent to the budget line. THE DEMAND FOR RISKY ASSETS 5.4 The Investor’s Choice Problem Risk and Indifference Curves Choosing Between Risk and Return Figure 5.6 Investor A is highly risk averse. Because his portfolio will consist mostly of the risk-free asset, his expected return RA will be only slightly greater than the risk-free return. His risk σA, however, will be small. Investor B is less risk averse. She will invest a large fraction of her funds in stocks. Although the expected return on her portfolio RB will be larger, it will also be riskier. THE DEMAND FOR RISKY ASSETS 5.4 The Investor’s Choice Problem Risk and Indifference Curves The Choices of Two Different Investors Figure 5.7 Because Investor A is risk averse, his portfolio contains a mixture of stocks and risk-free Treasury bills. Investor B, however, has a very low degree of risk aversion. Her indifference curve, UB, is tangent to the budget line at a point where the expected return and standard deviation for her portfolio exceed those for the stock market overall (Rm, σm) . This imp