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 38% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the utility levels of each portfolio for an investor with A= 2. Assume the utility function is U = E(r) - 8.5 x Aa². (Do not round Intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be Indicated by a minus sign.) WBills 0.0 Answer is not complete. Windex U(A = 2) (0.0144) 1.0 0.2 0.8 0.4 0.6 0.0460 0.6 0.4 0.0589 0.8 0.2 0.0602 1.0 0.0 0.0500
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 38% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the utility levels of each portfolio for an investor with A= 2. Assume the utility function is U = E(r) - 8.5 x Aa². (Do not round Intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be Indicated by a minus sign.) WBills 0.0 Answer is not complete. Windex U(A = 2) (0.0144) 1.0 0.2 0.8 0.4 0.6 0.0460 0.6 0.4 0.0589 0.8 0.2 0.0602 1.0 0.0 0.0500
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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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 38% per year. Assume these
values are representative of investors' expectations for future performance and that the current T-bill rate is 5%.
Calculate the utility levels of each portfolio for an investor with A= 2. Assume the utility function is U = E(r) - 8.5 x Aa². (Do not round
Intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be Indicated by a minus sign.)
WBills
0.0
Answer is not complete.
Windex
U(A = 2)
(0.0144)
1.0
0.2
0.8
0.4
0.6
0.0460
0.6
0.4
0.0589
0.8
0.2
0.0602
1.0
0.0
0.0500
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