Interview Question: Risky Aversion

Sample Question #34 (finance – portfolio theory)

Consider the utility function U(W) = W-1/2 . What are the characteristics of this function with respect to absolute and relative risk aversion?

Explain the difference between absolute and relative risk aversion.

[First question taken from chapter 10 of Elton, et al. Modern Portfolio Theory and Investment Analysis (click title to go to Amazon.com product page). BTW I think this book is better than the more popular Bodie et al. text — I have both.)]

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