Suppose Walmart has mean 5% and standard deviation 10%, and Tesla has mean 20%. The risk-free rate is 4%. Investors 1 and 2 have mean-variance utility. (a) Investor 1 is indifferent between Walmart, Tesla, and the risk-free asset. What is her risk aversion? What is the standard deviation of Tesla? (b) Investor 2 is indifferent between Tesla and a 12% risk-free return. Does he prefer Walmart or the risk-free asset? Which investor has the steeper indifference curve at Walmart? (c) Investor 1’s optimal portfolio has mean 16.5% and standard deviation 25%. Investor 2’s optimal portfolio has standard deviation 50%. What is the mean of investor 2’s optimal portfolio?

Suppose Walmart has mean 5% and standard deviation 10%, and Tesla has mean 20%. The risk-free rate is 4%. Investors 1 and 2 have mean-variance utility. (a) Investor 1 is indifferent between Walmart, Tesla, and the risk-free asset. What is her risk aversion? What is the standard deviation of Tesla? (b) Investor 2 is indifferent between Tesla and a 12% risk-free return. Does he prefer Walmart or the risk-free asset? Which investor has the steeper indifference curve at Walmart? (c) Investor 1’s optimal portfolio has mean 16.5% and standard deviation 25%. Investor 2’s optimal portfolio has standard deviation 50%. What is the mean of investor 2’s optimal portfolio?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2Q: Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a...

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