Question 1
An investor's utility function is U(w) = ln(w). What does this functional form imply about the investor's attitude to risk?
Correct Answer:
Risk-averse with decreasing absolute risk aversion
Question 2
An investor prefers more to less and is risk-averse. Which form of stochastic dominance is the WEAKEST condition guaranteeing that all such investors prefer investment X to investment Y?
Correct Answer:
Second-order stochastic dominance
Question 3
Under expected utility theory, the certainty equivalent of a risky gamble for a risk-averse investor is:
Correct Answer:
Less than the expected monetary value of the gamble
Question 4
A quadratic utility function U(w) = w - bw^2 (b>0) is sometimes criticised as a model of investor behaviour because it implies:
Correct Answer:
Increasing absolute risk aversion and eventual satiation
Question 5
The St. Petersburg paradox is most directly resolved by recognising that investors maximise:
Correct Answer:
Expected utility of wealth
Question 1
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Prepare with the IFoA CM2 Practice Questions - IFoA CM2 Financial Engineering and Loss Reserving Exam practice quiz. This question bank includes 100 questions covering portfolio, expected, investor, return, and risk. Use it to review important concepts, identify knowledge gaps, and build confidence for the related exam, course, or assessment.

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

This practice set contains 100 questions from the matching question bank and focuses on portfolio, expected, investor, return, and risk. Work through each question carefully, review the provided solutions, and revisit topics that need more study before your next attempt.

This is an independent study resource intended for practice and review; it is not an official examination or an endorsement by any organization named in the title.

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