Chapter 5, Problem 6CP

Lise the following data in answerifng CFA Question 4-6.
Investment
Expected Return, E(r)
Standard Deviation, 6

1	 0.12	 030
2 	0.15 	0.50
3 	0.21	 016
4	 0.24	021

Suppose investor “satisfaction” with a portfolio increases with expected return an d decreases with variance according to the following uti1ity” formula: U = E(r) - ½ Ar² where A denotes the investor’s risk aversion.
6. The variable (A) in the utility formula represents the: (LO 5-4)
a. Investor’s return requirement.
b. Is higher when the investor demands a greater risk premium as compensation for a given increase in the variance of returns.
c. Preference for one unit of return per four units of risk.