in equation 6.1 that the utility provided by a risk-free portfolio is simply the rate of return on the portfolio, because there is no penalization for risk. This provides us with a II. Portfolio Theory 6. Risk and Risk Aversion The McGraw−Hill Companies, 2001                   2A. What would you do if the goal were five years away? a. Sell b. Do nothing c. Buy more 2B. What would you do if the goal were 15 years away? a. Sell b. Do nothing c. Buy more 2C. What would you do if the goal were 30 years away? a. Sell b. Do nothing c. Buy more 3. The price of your retirement investment jumps 25% a month after you buy it. Again, the fundamentals havent changed. After you finish gloating, what do you do? a. Sell it and lock in your gains b. Stay put and hope for more gain c. Buy more; it could go higher 4. Youre investing for retirement, which is 15 years away. Which would you rather do? a. Invest in a money-market fund or guaranteed investment contract, giving up the possibility of major gains, but virtually assuring the safety of your principal b. Invest in a 50-50 mix of bond funds and stock funds, in hopes of getting some growth, but also giving yourself some protection in the form of steady income c. Invest in aggressive growth mutual funds whose value will probably fluctuate signifi- cantly during the year, but have the potential for impressive gains over five or 10 years 5. You just won a big prize! But which one? Its up to you. a. $2,000 in cash b. A 50% chance to win $5,000 c. A 20% chance to win $15,000 6. A good investment opportunity just came along.