Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 90 years has averaged roughly 8% more than the treasury bill return on that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investor's expectations for future performance and that the current T-bill rate is 5%.

Calculate the utility levels of each portfolio for an investor with A=2. What do you conclude?

Wbills Windex

0 1.0

0.2 0.8

0.4 0.6

0.6 0.4

0.8 0.2

1.0 0