Use the utility function u = E (r,) – 0.5 A ož where A is the risk aversion parameter and A = 3.5. Use the average annual return on the S&P 500 as E(r,). Use the average annual interest rate on the US Government 10-year treasury bond over the past decade as rf.' Solve for the investor's optimal allocation between the risky and the risk-free asset.

Use the utility function u = E (r,) – 0.5 A ož where A is the risk aversion parameter and A = 3.5. Use the average annual return on the S&P 500 as E(r,). Use the average annual interest rate on the US Government 10-year treasury bond over the past decade as rf.' Solve for the investor's optimal allocation between the risky and the risk-free asset.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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