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As the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for

As the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms. A has a risk-tolerance factor of 7, while Mr. B has a risk-tolerance factor of 22. The characteristics for four model portfolios follow:

ASSET MIX
Portfolio Stock Bond ER 2
1 7 % 93 % 9 % 6 %
2 20 80 10 9
3 70 30 11 15
4 80 20 12 24

Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places.

Portfolio Ms. A Mr. B
1
2
3
4

Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B?

Portfolio -Select-1234Item 9 represents the optimal strategic allocation for Ms. A. Portfolio -Select-1234Item 10 is the optimal allocation for Mr. B.

For Ms. A, what level of risk tolerance would leave her indifferent between having Portfolio 1 or Portfolio 4 as her strategic allocation? Round your answer to the nearest whole number.

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