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Consider an economy with 2 risky assets and one risk free asset. Two investors, A and B, have mean-variance utility functions (with different risk aversion
Consider an economy with 2 risky assets and one risk free asset. Two investors, A and B, have mean-variance utility functions (with different risk aversion coefficients). Let P denote investor A's optimal portfolio of risky and risk-free assets and let Q denote investor B's optimal portfolio of risky and risk-free assets. P and Q have expected returns and standard deviations given by
E[R] St. Dev.
P 0.2 0.45
Q 0.1 0.25
(a) What is the risk-free interest rate in this economy?
(b) What is the Sharpe ratio of investor A?
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