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Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 33% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 3%. Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility function is = E(r) 0.5 x Ao. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places.) WBills WIndex U(A = 3) 0.0 1.0 0.1308 x 0.2 0.8 0.0940 x 0.4 0.6 0.0780 0.6 0.4 0.0620 0.8 0.2 0.4600 1.0 0.0 0.0300
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