IFoA CM2 Practice Questions - IFoA CM2 Financial Engineering And Loss Reserving Exam

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A quadratic utility function U(w) = w - bw^2 (b>0) is sometimes criticised as a model of investor behaviour because it implies:

Decreasing absolute risk aversion Constant relative risk aversion Risk-neutral behaviour at all wealth levels Increasing absolute risk aversion and eventual satiation

Correct Answer:

Increasing absolute risk aversion and eventual satiation

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