Suppose the consumer has a Mean-Variance utility, u(ra, 0₂) = −(9% — rz)² – o², and there are a risk-free asset with return rf = 5% and a risky asset with expected return T'm = 9% and standard deviation om = 4%. If x is the fraction of income invested in the risky asset m so that the consumer problem is max_u(rz, O₂) = −(9% – rz)² - 0²/ subject to r₂ = (1-x) × 5% + x x 9% σ₂ = x x 4%, answer the following questions tion 6 (a) In the consolidated budget constraint, the relative "price" of -o to r, is Tm-Tf στην A. B. Tm1=2 vom = 1 C. Tm= 2.25 om D. rm -rf = 4%.

Essentials of Business Analytics (MindTap Course List)
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ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Chapter15: Decision Analysis
Section: Chapter Questions
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3. Suppose the consumer has a Mean-Variance utility, u(rz,0z) = − (9% - ₂)² - 0², and
there are a risk-free asset with return rf = 5% and a risky asset with expected return
Tm = 9% and standard deviation om = 4%. If x is the fraction of income invested in the
risky asset m so that the consumer problem is
Question 6
answer the following questions
Tm-Tf
om
subject to
A.
B. Tm-rf
Vom
-01
(a) In the consolidated budget constraint, the relative "price" of
max
x
= 1
= 2
C. Tm 2.25
om
u(rz,0z) = (9% - rz)² - 0²/
r₂ = (1-x) × 5% + x × 9%
0₂ = x x 4%,
D. rm -rf = 4%.
to r, is
Transcribed Image Text:3. Suppose the consumer has a Mean-Variance utility, u(rz,0z) = − (9% - ₂)² - 0², and there are a risk-free asset with return rf = 5% and a risky asset with expected return Tm = 9% and standard deviation om = 4%. If x is the fraction of income invested in the risky asset m so that the consumer problem is Question 6 answer the following questions Tm-Tf om subject to A. B. Tm-rf Vom -01 (a) In the consolidated budget constraint, the relative "price" of max x = 1 = 2 C. Tm 2.25 om u(rz,0z) = (9% - rz)² - 0²/ r₂ = (1-x) × 5% + x × 9% 0₂ = x x 4%, D. rm -rf = 4%. to r, is
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