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As the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms. A has a risk-tolerance factor of 8, while Mr. B has a risk-tolerance factor of 27. The characteristics for four model portfolios follow:   ASSET MIX Portfolio Stock Bond ER σ2 1 6 % 94 % 9 % 6 % 2 25   75   10   10   3 67   33   11   14   4 88   12   12   24     Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places.   Portfolio Ms. A Mr. B 1       2       3       4         Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B? Portfolio  represents the optimal strategic allocation for Ms. A. Portfolio  is the optimal allocation for Mr. B. For Ms. A, what level of risk tolerance would leave her indifferent between having Portfolio 1 or Portfolio 2 as her strategic allocation? Round your answer to the nearest whole number.

As the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms. A has a risk-tolerance factor of 8, while Mr. B has a risk-tolerance factor of 27. The characteristics for four model portfolios follow:   ASSET MIX Portfolio Stock Bond ER σ2 1 6 % 94 % 9 % 6 % 2 25   75   10   10   3 67   33   11   14   4 88   12   12   24     Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places.   Portfolio Ms. A Mr. B 1       2       3       4         Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B? Portfolio  represents the optimal strategic allocation for Ms. A. Portfolio  is the optimal allocation for Mr. B. For Ms. A, what level of risk tolerance would leave her indifferent between having Portfolio 1 or Portfolio 2 as her strategic allocation? Round your answer to the nearest whole number.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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As the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms. A has a risk-tolerance factor of 8, while Mr. B has a risk-tolerance factor of 27. The characteristics for four model portfolios follow:

 

ASSET MIX
Portfolio Stock Bond ER σ2
1 6 % 94 % 9 % 6 %
2 25   75   10   10  
3 67   33   11   14  
4 88   12   12   24  

 

  1. Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places.

     

    Portfolio Ms. A Mr. B
    1      
    2      
    3      
    4      

     

  2. Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B?

    Portfolio  represents the optimal strategic allocation for Ms. A. Portfolio  is the optimal allocation for Mr. B.

  3. For Ms. A, what level of risk tolerance would leave her indifferent between having Portfolio 1 or Portfolio 2 as her strategic allocation? Round your answer to the nearest whole number.

  4.  

      

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