Homework Help is Here – Start Your Trial Now!
Business
Finance
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
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
See similar textbooks
icon
Related questions
Question

Please help with this question with full working out.

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%
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.

Utility=Expected return-0.5A×standard deviation2

steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
No Arbitrage and Security Prices
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS