Based on investment information given next and the utility formula U = E(r) 0.5A 2 ,
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Based on investment information given next and the utility formula U = E(r) – 0.5Aσ2, answer the following questions. Returns and standard deviations are both expressed as percent per year. When using the utility formula, however, returns and standard deviations must be expressed in decimals.
1. Which investment will a risk-averse investor with a risk aversion coefficient of 4 choose?
2. Which investment will a risk-averse investor with a risk aversion coefficient of 2 choose?
3. Which investment will a risk-neutral investor choose?
4. Which investment will a risk-loving investor choose?
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Related Book For 
Investments Principles Of Portfolio And Equity Analysis
ISBN: 9780470915806
1st Edition
Authors: Michael McMillan, Jerald E. Pinto, Wendy L. Pirie, Gerhard Van De Venter, Lawrence E. Kochard
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