Chapter 5. CFA problems 3. Which of the following statements reflects the importance of the asset allocation decision to the investment process? The asset allocation decision: (LO 5-3) a. Helps the investor decide on realistic investment goals. b. Identifies the specific securities to include in a portfolio. c. Determines most of the portfolio's returns and volatility over time. d. Creates a standard by which to establish an appropriate investment time horizon. Use the following data in answering CFA Questions 4-6. Investment Expected Return, E(r) Standard Deviation, sigma 1 0.12 0.30 2 0.15 0.50 3 0.21 0.16 4 0.24 0.21 Suppose investor "satisfaction" with a portfolio increases with expected return and decreases with variance according to the following "util

3. Which of the following statements reflects the importance of the asset allocation decision to the investment process? The asset allocation decision: (LO 5-3) a. Helps the investor decide on realistic investment goals. b. Identifies the specific securities to include in a portfolio. c. Determines most of the portfolio's returns and volatility over time. d. Creates a standard by which to establish an appropriate investment time horizon. Use the following data in answering CFA Questions 4-6. Suppose investor "satisfaction" with a portfolio increases with expected return and decreases with variance according to the following "utility" formula: U=E(r)1/2A2 where A=4. 4. Based on the formula for investor satisfaction or "utility," which investment would you select if you were risk averse with A=4 ? (LO 5-4) 5. Based on the formula above, which investment would you select if you were risk neutral, with A=0 ? (LO 5-4) 6. The variable (A) in the utility formula represents the: (LO 5-4) a. Investor's return requirement. b. Investor's aversion to risk. c. Certainty equivalent rate of the portfolio. d. Preference for one unit of return per four units of risk