Question
Assume that all investors in the economy maximize the same utility function U=E(r)0.5*A*^2 They also have identical risk preferences and the same coefficient of risk
Assume that all investors in the economy maximize the same utility function U=E(r)0.5*A*^2
They also have identical risk preferences and the same coefficient of risk aversionA.The investors can invest in the market portfolio and borrow and lend at the risk-free rate. Variance of the market portfolio is 0.04and the risk-free rate is 2.5%.
If the coefficient of risk-aversionA= 4, what is the expected return on the market portfolio?
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Survey of Accounting
Authors: Carl S Warren
5th Edition
9780538489737, 538749091, 538489731, 978-0538749091
