Question
Average Annual Returns U.S. Equity Market Period U.S. equity 1-Month T-Bills Excess return Standard Deviation Sharpe Ratio 19272018 11.77 3.38 8.34 20.36 0.41 19271949 9.40
Average Annual Returns | U.S. Equity Market | ||||||||||||||||||
Period | U.S. equity | 1-Month T-Bills | Excess return | Standard Deviation | Sharpe Ratio | ||||||||||||||
19272018 | 11.77 | 3.38 | 8.34 | 20.36 | 0.41 | ||||||||||||||
19271949 | 9.40 | 0.92 | 8.49 | 26.83 | 0.32 | ||||||||||||||
19501972 | 14.00 | 3.14 | 10.86 | 17.46 | 0.62 | ||||||||||||||
19731995 | 13.38 | 7.26 | 6.11 | 18.43 | 0.33 | ||||||||||||||
19962018 | 10.10 | 2.21 | 7.89 | 18.39 | 0.43 | ||||||||||||||
a. If your risk-aversion coefficient is A = 5.4 and you believe that the entire 19272018 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is U= E(r) 0.5 A2. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
b. If your risk-aversion coefficient is A = 5.4 and you believe that the entire 19731995 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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