8. (7 a. What is the equity premium puzzle? marks) b. A mean-variance investor has utility function U (4,0) = 4 - 202, where u is portfolio expected return, o is portfolio standard deviation, and p is the investor's risk-aversion coefficient. If the risk-free rate of return is 4%, the average return on the market index is 12%, and the standard deviation of the market index is 25%, what risk-aversion coefficient would justify investing equal amounts in the risk-free asset and the market index? (9 marks) c. Suppose the value of a portfolio over a 30-day period is log-normally distributed so that the 30-day log-return has mean 1.5% and standard deviation 9%. For a standard normal random variable with zero mean and unit variance, the probability that z is less than or equal to -1.645 is approximately 5%. What is the 30-day 5% VaR of the portfolio, expressed as log-returns? What is the 60-day 5% VaR? marks) (25 marks) 8. (7 a. What is the equity premium puzzle? marks) b. A mean-variance investor has utility function U (4,0) = 4 - 202, where u is portfolio expected return, o is portfolio standard deviation, and p is the investor's risk-aversion coefficient. If the risk-free rate of return is 4%, the average return on the market index is 12%, and the standard deviation of the market index is 25%, what risk-aversion coefficient would justify investing equal amounts in the risk-free asset and the market index? (9 marks) c. Suppose the value of a portfolio over a 30-day period is log-normally distributed so that the 30-day log-return has mean 1.5% and standard deviation 9%. For a standard normal random variable with zero mean and unit variance, the probability that z is less than or equal to -1.645 is approximately 5%. What is the 30-day 5% VaR of the portfolio, expressed as log-returns? What is the 60-day 5% VaR? marks) (25 marks)