Course: Finance As a great investor, you are interested in 3 assets to invest: A, B and C. A financial advisor tells you that the returns on the assets are independent of each other, and you are given the following data: Asset A B C E(Ri) 0.05 0.035 0.06 Variance 0.0015 0 0.008 You have not yet analyzed what your degree of risk aversion (A) is, but you know that your utility function behaves as follows: U[ E(Rp)] = E(Rp) - 0.5 * A * Variance. (See attached image for a better understanding)
Course: Finance As a great investor, you are interested in 3 assets to invest: A, B and C. A financial advisor tells you that the returns on the assets are independent of each other, and you are given the following data: Asset A B C E(Ri) 0.05 0.035 0.06 Variance 0.0015 0 0.008 You have not yet analyzed what your degree of risk aversion (A) is, but you know that your utility function behaves as follows: U[ E(Rp)] = E(Rp) - 0.5 * A * Variance. (See attached image for a better understanding)
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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Course: Finance
As a great investor, you are interested in 3 assets to invest: A, B and C. A financial advisor tells you that the
| Asset | A | B | C |
| E(Ri) | 0.05 | 0.035 | 0.06 |
| Variance | 0.0015 | 0 | 0.008 |
You have not yet analyzed what your degree of risk aversion (A) is, but you know that your utility function behaves as follows: U[ E(Rp)] = E(Rp) - 0.5 * A * Variance. (See attached image for a better understanding)
You are asked to:
(a) Find the optimal portfolio with these 3 assets {called wA, wB and wC}.
b) Calculate the expected return and risk of the optimal portfolio for the following degrees of risk aversion (A):
(i) A = 5
(ii) A = 10
(iii) A = 16
Please ASAP
Transcribed Image Text:U(E(1p), o (r )) = E(1p) -1/2 A o²
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