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, whille Mr.Bhas a risk-tolerance factor of 27. The characteristics for four model portfolios follo ASSET MIX Bond 93% 75 32 13 Portfolio 2 4 Stock 7% 25 GB 87 a. Calculate the expected utility of each prespective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places Portfolio 1 2 3 Ms. A ER 8% 0 10 11 b. Which portfolio represents the optimal strategic allocation for Ms. A7 Which portfolo is optimal for Mr. B Portfolio Slt represents the optimal strategic allocation for Ms. A. Portfello 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. 0² 7% 9 14 24 Mr. B

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, whille Mr.Bhas a risk-tolerance factor of 27. The characteristics for four model portfolios follo ASSET MIX Bond 93% 75 32 13 Portfolio 2 4 Stock 7% 25 GB 87 a. Calculate the expected utility of each prespective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places Portfolio 1 2 3 Ms. A ER 8% 0 10 11 b. Which portfolio represents the optimal strategic allocation for Ms. A7 Which portfolo is optimal for Mr. B Portfolio Slt represents the optimal strategic allocation for Ms. A. Portfello 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. 0² 7% 9 14 24 Mr. B

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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Concept explainers

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.

Question

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 27. The characteristics for four model portfolios follow:
ASSET MIX
Bond
93%
75
32
13
Portfolio
1
2
3
4
Stock
7%
25
GB
87
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.
1
2
3
Portfolio
Ms. A
ER
8%
9
10
11
b. Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B?
Portfollo-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.
0²
7%
9
14
24
Mr. B

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