s the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms. A has a risk-tolerance factor of 8, while Mr. B has a risk-tolerance factor of 26. The characteristics for four model portfolios follow: ASSET MIX Bond 91% 80 2 39 3 4 14 a. Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places. Portfolio 1 2 3 Portfolio 1 Stock 9% 20 61 86 Ms. A ER 8% 9 10 11 02 6% 12 15 24 Mr. B b. Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B? Portfolio -Select-represents the optimal strategic allocation for Ms. A. Portfolio -Select- is the optimal allocation for Mr. B. c. For Ms. A, what level of risk tolerance would leave her indifferent between having Portfolio 1 or Portfolio 2 as her strategic allocation? Round your answer to the nearest whole number.
s the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms. A has a risk-tolerance factor of 8, while Mr. B has a risk-tolerance factor of 26. The characteristics for four model portfolios follow: ASSET MIX Bond 91% 80 2 39 3 4 14 a. Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places. Portfolio 1 2 3 Portfolio 1 Stock 9% 20 61 86 Ms. A ER 8% 9 10 11 02 6% 12 15 24 Mr. B b. Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B? Portfolio -Select-represents the optimal strategic allocation for Ms. A. Portfolio -Select- is the optimal allocation for Mr. B. c. For Ms. A, what level of risk tolerance would leave her indifferent between having Portfolio 1 or Portfolio 2 as her strategic allocation? Round your answer to the nearest whole number.
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:Problem 11-06
As the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms. A has a risk-tolerance factor of 8,
while Mr. B has a risk-tolerance factor of 26. The characteristics for four model portfolios follow:
ASSET MIX
Bond
91%
8%
80
9
39
10
3
4
14
11
a. Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places.
Mr. B
Portfolio
1
2
Portfolio
1
Stock
9%
20
61
86
2
3
4
b. Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B?
Ms. A
ER
02
6%
12
15
24
Portfolio -Select-represents the optimal strategic allocation for Ms. A. Portfolio -Select- is the optimal allocation for Mr. B.
c. For Ms. A, what level of risk tolerance would leave her indifferent between having Portfolio 1 or Portfolio 2 as her strategic allocation? Round your answer to the nearest whole number.
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