4. (10 points)

(a) On the basis of the utility formula above, which investment would you select if you were risk averse with A = 4? (4 points)

(b) On the basis of the utility formula above, which investment would you select if you were risk neutral? (2 points)

(c) Draw the indifference curve of Investment 3 with risk aversion A = 4. (4 points)

Utility Formula Data Expected Return, E(r) .12 .15 21 24 Investment Standard Deviation, .30 .50 .16 .21 4 U = E(r) _ A2, where A-4