Chapter 5, Problem 4CP

Use the following data in answering CFA Questions 4-6.
Investment Expected Return,E®Standard Deviation, 6

10. 120.30

20. 10.50

30. 210.16

4. 0.24 0.21
Suppose investor “satisfaction” with a portfolio increases with expected return and decreases with variance according to the following “utility” formula: U = E® − ½ A²where A denotes the investor’s risk aversion.
4. Based on the formula for investor satisfaction or “utility,” which investment would you select if you were risk averse with A = 4? (LO 54)