Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return. Suppose that the U.S. market is your risky portfolio. Period 1927-2018 1927-1949 1950-1972 1973-1995 1996-2018 Average Annual Returns 1-Month 1-Bills 3.38 T-bils Equity U.S. equity 11.77 9.40 14.00 13.38 10.10 0.92 3.14 7.26 2.21 Excess return 8.34 8.49 10.86 6.11 7.89 U.S. Equity Market Standard Deviation 20.36 26.83 17,46 18.41 18.39 Sharpe Ratio 0.41 0.32 0.62 0.33 0.43 a. If your risk-aversion coefficient is A-5.2 and you believe that the entire 1927-2018 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is u - E(P)-0.5 Ao². (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return. Suppose that the U.S. market is your risky portfolio. Period 1927-2018 1927-1949 1950-1972 1973-1995 1996-2018 Average Annual Returns 1-Month 1-Bills 3.38 T-bils Equity U.S. equity 11.77 9.40 14.00 13.38 10.10 0.92 3.14 7.26 2.21 Excess return 8.34 8.49 10.86 6.11 7.89 U.S. Equity Market Standard Deviation 20.36 26.83 17,46 18.41 18.39 Sharpe Ratio 0.41 0.32 0.62 0.33 0.43 a. If your risk-aversion coefficient is A-5.2 and you believe that the entire 1927-2018 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is u - E(P)-0.5 Ao². (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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:Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return.
Suppose that the U.S. market is your risky portfolio.
Period
1927-2018
1927-1949
1950-1972
1973-1995
1906-2018
Average Annual Returns i
1-Month
T-Bills
T-bils
Equity
U.S. equity
11.77
9.40
14.00
13.38
10.10
%
3.38
0.92
3.24
7.26
2.21
%
Excess
return
8.34
8.49
10.86
6.11
7.89
U.S. Equity Market
Standard
Deviation
20.36
26.83
17,46
a. If your risk-aversion coefficient is A-5.2 and you believe that the entire 1927-2018 period is representative of future expected
performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is u
- E(r) 8.5 Ao². (Do not round intermediate calculations. Round your answers to 2 decimal places.)
18.41
18.39
Sharpe
Ratio
0.41
0.32
0.62
0.33
Transcribed Image Text:b. If your risk-aversion coefficient is A=5.2 and you believe that the entire 1973-1995 period is representative of future expected
performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
T-bills
Equity
%
%
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