2a)

Using sample average returns and standard deviations of the two investment strategies provided in class slides (S&P 500 and Volatility Strategy), calculate the certainty equivalent risk-free rate for the S&P500.

Assume mean-variance utility with risk aversion coefficient equal to 2.

Enter your answer in percentage points with two decimal spaces.

2b)

Using sample average returns and standard deviations of the two investment strategies provided in class slides (S&P 500 and Volatility Strategy), calculate the certainty equivalent risk-free rate for the Volatility Strategy.

Assume mean-variance utility with risk aversion coefficient equal to 2.

Enter your answer in percentage points with two decimal spaces.

2c)

Compare the answers to the two preceding quesions. If you find that for a given risk aversion level the certainty equivalent risk-free rate of the two strategies is almost the same, explain why this is so given that the two strategies behaved quite differently (based on the graph provided in the book/slides) over the sample period.