An investor with an estimated degree of risk aversion, A = 4.3 wants to invest a proportion y of available funds in a risky portfolio with an expected return of 16% and a standard deviation of 20% and the remaining proportion (1 - y) of available funds in treasury bills with a return of 2%.

a. What proportion y* will maximize this investors utility?

b. What is the expected return on the optimized portfolio?

c. What is the standard deviation of return on the optimized portfolio?

Correct answers are below. Please show all work clearly on how you get the answer for a great score. Thank you!

a: y*= 0.814

b: E(rC) = 13.4%

c: C= 16.3%