Answered step by step
Verified Expert Solution
Question
1 Approved Answer
2. You are tasked with picking an appropriate investment portfolio for a new client. You will need to prepare three different portfolio options for them
2. You are tasked with picking an appropriate investment portfolio for a new client. You will need to prepare three different portfolio options for them to review which will suit different levels of risk aversion. You can find the historical annual returns data in the table below to inform your model. a. What percentage of the portfolio should be invested in Stocks A, B, C, and D if the client is completely risk averse (r = 1)? What would be the expected return? b. What percentage of the portfolio should be invested in Stocks A, B, C, and D if the client is completely risk loving (r = 0)? What would be the expected return? c. What percentage of the portfolio should be invested in Stocks A, B, C, and D if the client has a risk aversion of r = 0.95? What would be the expected return? Annual Return Year A B C D 8.0% 12.0%% 10.9% 11.2% IN 9.2% 8.5% 22.0% 10.8% 3 7.7% 13.0% 19.0% 9.7% 4 6.6% -2.6% 37.9% 11.6% 18.5% 7.8%% -11.8% -1.6% 7.4% 3.2% 12.9% -4.1% 13.0% 9.8% -7.5% 8.6% 22.0% 13.5% 9.3% 6.8% 14.0% 6.5% 48.7% 11.9% 10 20.5% -3.5% -1.9% 12.0% 11 14.0% 17.5% 19.1% 8.3% 12 19.0% 14.5% -3.4% 6.0% 13 9.0%% 18.9%% 43.0% 10.2% Average 12.99% 9.16%% 15.25% 7.80%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started