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.)]