Conversation Between ShiFTy and Mr.PooPants

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  1. Indifference curves have a positive slope because they are showing the combinations of risk and return which the investor is indifferent between. The positive slope occurs because if the investor takes on more risk, then (s)he has to be compensated for with a higher return. Slide 26, which is referred to in part (b) deals with this point. Another way to explain this point is to say the indifference curve cannot have a negative slope because high-return low-risk combinations will always be preferred to low-return high-risk combinations.
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