Refer the table below on the average risk premium of the S&P 500 over T-bills, and the
Question:
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Average annual return on large stocks and 1-month T-bills; standard deviation and Sharpe ratio of large stocks over time
The probability that the estimate of the Sharpe ratio over 1926-2012 equals the true value and that we observe the reported, or an even more different Sharpe ratio for the sub period.
(a). If your risk-aversion coefficient is A = 3.5 and you believe that the entire 1926-2012 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is U = E(r) - 0.5 × Aσ2.
(b). If your risk-aversion coefficient is A = 3.5 and you believe that the entire 1968-1988 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity?
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...
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a Compute the weight of equity using the data of 19262012 as f...View the full answer
