5. Based on investment information given below and the utility formula U = E(r) – 0.5Ao?, answer the following questions. Returns and standard deviations are both expressed as percent per year. When using the utility formula, however, returns and standard deviations must be expressed in decimals. Investment Expected Return E(r) (%) Standard Deviation o (%) 1. 12 30 15 35 3 21 40 4 24 45 1. Which investment will a risk-averse investor with a risk aversion coefficient of 4 choose? 2. Which investment will a risk-averse investor with a risk aversion coefficient of 2 choose? 3. Which investment will a risk-neutral investor choose? 4. Which investment will a risk-loving investor choose?

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5. Based on investment information given below and the utility formula U = E(r) – 0.5Ao?, answer the
following questions. Returns and standard deviations are both expressed as percent per year. When using
the utility formula, however, returns and standard deviations must be expressed in decimals.
Investment Expected Return E(r) (%) Standard Deviation o (%)
1.
12
30
15
35
3
21
40
4
24
45
1. Which investment will a risk-averse investor with a risk aversion coefficient of 4 choose?
2. Which investment will a risk-averse investor with a risk aversion coefficient of 2 choose?
3. Which investment will a risk-neutral investor choose?
4. Which investment will a risk-loving investor choose?
Transcribed Image Text:5. Based on investment information given below and the utility formula U = E(r) – 0.5Ao?, answer the following questions. Returns and standard deviations are both expressed as percent per year. When using the utility formula, however, returns and standard deviations must be expressed in decimals. Investment Expected Return E(r) (%) Standard Deviation o (%) 1. 12 30 15 35 3 21 40 4 24 45 1. Which investment will a risk-averse investor with a risk aversion coefficient of 4 choose? 2. Which investment will a risk-averse investor with a risk aversion coefficient of 2 choose? 3. Which investment will a risk-neutral investor choose? 4. Which investment will a risk-loving investor choose?
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