This question assumes the standard mean-variance utility function. You are allocating your investments between a the NZX50 and a holding of (New Zealand) T-bills. The expected return on the NZX50 is 6.70%, with volatility 18.70%. In contrast, there is no risk investing in T-bills, and they will earn you a return of 3.30%. Your risk-aversion is 6. What percentage of your wealth should you allocate to the NZX50? O 3.03% O 2.70% O 16.20% O 31.93%
This question assumes the standard mean-variance utility function. You are allocating your investments between a the NZX50 and a holding of (New Zealand) T-bills. The expected return on the NZX50 is 6.70%, with volatility 18.70%. In contrast, there is no risk investing in T-bills, and they will earn you a return of 3.30%. Your risk-aversion is 6. What percentage of your wealth should you allocate to the NZX50? O 3.03% O 2.70% O 16.20% O 31.93%
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:This question assumes the standard mean-variance utility function. You are allocating your investments between a the NZX50 and a holding of (New Zealand) T-bills. The expected return on the NZX50 is 6.70%, with volatility 18.70%. In contrast, there is no risk investing in T-bills, and they will earn you a return
of 3.30%. Your risk-aversion is 6. What percentage of your wealth should you allocate to the NZX50?
O 3.03%
O 2.70%
16.20%
O 31.93%
Expert Solution
Step 1
Minimum variance portfolio helps in ascertaining a portfolio which has highest return for a given risk. As the risk aversion increases percentage of allocation in risky asset decreases.
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