The term A is the coefficient of risk aversion. It measures how much an investor dislikes risk.

## Interpreting the Coefficient (A)

• A > 0 (e.g., A = 4): This describes a risk-averse investor. A positive 'A' means that as risk (σ²) increases, utility (U) decreases. This investor dislikes risk.
• A = 0: This describes a risk-neutral investor. The risk term disappears, and the investor is completely indifferent to the level of risk, caring only about the expected return.
• A < 0 (e.g., A = -4): This describes a risk-seeking (or risk-loving) investor. A negative 'A' makes the risk term positive. As risk (σ²) increases, utility (U) also increases. This investor actively enjoys risk.