Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 31% per year. Assume these values are representative of Investors' expectations for future performance and that the current T-bill rate is 3%. Calculate the utility levels of each portfolio for an Investor with A = 2. Assume the utility function is U = E(r) - 0.5 * Ao². Note: Do not round Intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign. W Bills 0.0 0.2 0.4 0.6 0.8 1.0 WIndex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 2)
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 31% per year. Assume these values are representative of Investors' expectations for future performance and that the current T-bill rate is 3%. Calculate the utility levels of each portfolio for an Investor with A = 2. Assume the utility function is U = E(r) - 0.5 * Ao². Note: Do not round Intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign. W Bills 0.0 0.2 0.4 0.6 0.8 1.0 WIndex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 2)
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
Problem 1PS
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Question
Transcribed Image Text:Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85
years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been
about 31% per year. Assume these values are representative of Investors' expectations for future performance and
that the current T-bill rate is 3%.
Calculate the utility levels of each portfolio for an Investor with A = 2. Assume the utility function is u = E(r) - 8.5 x
Ao².
Note: Do not round Intermediate calculations. Round your answers to 4 decimal places. Negative amounts should
be Indicated by a minus sign.
W Bills
0.0
0.2
0.4
0.6
0.8
1.0
Windex
1.0
0.8
0.6
0.4
Oo
0.2
0.0
U(A = 2)
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