Question
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%
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 22% 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
WBills 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 ?
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