7.2 Spreadsheet Calculations of Indifference Curves. (Entries in columns 2-4 are expected returns necessary to provide specified utility value.)   A 2 A 4   U 5 U 9 U 5 U 9   0 5.000 9.000 5.000 9.000 5 5.250 9.250 5.500 9.500 10 6.000 10.000 7.000 11.000 15 7.250 11.250 9.500 13.500 20 9.000 13.000 13.000 17.000 25 11.250 15.250 17.500 21.500 30 14.000 18.000 23.000 27.000 35 17.250 21.250 29.500 33.500 40 21.000 25.000 37.000 41.000 45 25.250 29.250 45.500 49.500 50 30.000 34.000 55.000 59.000     To illustrate how to build an indifference curve, consider an investor with risk aversion A 4 who currently holds all her wealth in a risk-free portfolio yielding rf 5%. Because the variance of such a portfolio is zero, equation 7.4 tells us that its utility value is U 5. Now we find the expected return the investor would require to maintain the same level of utility when holding a risky portfolio, say with 1%. We use equation 7.4 to find how much E(r) must increase to compensate for the higher value of :   U E(r) .005 A 2   5 E(r) .005 4 12   This implies that the necessary expected return increases to   required E(r) 5 .005 A 2 (7.6)   5 .005 4 12 5.02%.   We can repeat this calculation for many other levels of , each time finding the value of E(r) necessary to maintain U 5. This process will yield all combinations of expected re- turn and volatility with utility level of 5; plotting these combinations gives us the indiffer- ence curve. We can readily generate an investors indifference curves using a spreadsheet. Table 7.2 contains risk-return combinations with utility values of 5% and 9% for two investors, one with A 2 and the other with A 4. For example, column (2)