Question
A portfolio has an expected rate of return of 10% and a standard deviation of 40%. The risk-free rate is 2%. An investor has the
A portfolio has an expected rate of return of 10% and a standard deviation of 40%. The risk-free rate is 2%. An investor has the following utility function:
U = E(r) - 0.005(A)2
What value of A makes this investor indifferent between the risky portfolio and the risk-free asset?
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Introduction to Finance Markets, Investments and Financial Management
Authors: Ronald W. Melicher, Edgar A. Norton
16th edition
1119398282, 978-1-119-3211, 1119321115, 978-1119398288
