Information for the question:Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%.Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund.Risky portfolio includes: Stock A 27%Stock B 33%Stock C 40% Use the information in problem 12, and assume your client's utility function is U = E(r) – Ao?.1. What is his optimal allocation y, if his risk aversion, A, is 2, 5, or 10?2. What if the expected return on your fund goes up to 20% (for A = 2)?3. What if the return standard deviation of your fund goes up to 35% (for A = 2; expectedreturn is still 17%)?

Given : Stock A =27% Stock B = 33% Stock C = 40%

Information for the question: Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money

Information for the question: Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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Information for the question:

Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%.

Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund.

Risky portfolio includes:

Stock A		27%
Stock B		33%
Stock C		40%

Use the information in problem 12, and assume your client's utility function is U = E(r) – Ao?.
1. What is his optimal allocation y, if his risk aversion, A, is 2, 5, or 10?
2. What if the expected return on your fund goes up to 20% (for A = 2)?
3. What if the return standard deviation of your fund goes up to 35% (for A = 2; expected
return is still 17%)?

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