Choose the answer that is closest to the correct answer.

Based on the values provided in previous question, if the investor's level of risk aversion increases, holding all else equal, will the optimal proportion invested in the risky portfolio, $y^{**},$ decrease, increase, or stay the same?

decrease

increase

stay the same

$2.$

If the expected return from the risky portfolio is $10\%,$ the risk$-$free rate is $4\%,$ the standard deviation of the risky portfolio is $15\%,$ and the level of risk aversion, A$,$ for an investor is $3,$ what proportion of the investor's wealth, $y^{**},$ should be invested in the risky portfolio?

$0\mathrm{.}11$

$\mathrm{.}13$

$\mathrm{.}64$

$\mathrm{.}89$