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 35% 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 U = E(r) 0.5 A². (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places.)

WBILL WINDEX U(A=3)

0.0 1.0

0.2 0.8

0.4 0.6

0.6 0.4

0.8 0.2

1.0 0.0

15. You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate is 8%. Your client chooses to invest 70% of a portfolio in your fund and 30% in an essentially risk-free money market fund. What are the expected return and standard deviation of the rate of return on his portfolio?

EXPECTED RETURN %

STANDARD DEVIATION %