Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
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 23% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 6%.
Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility function is U = E(r) 0.5 A2.
Wbills | WIndex | U(A=2) |
0 | 1 | |
.2 | .8 | |
.4 | .6 | |
.6 | .4 | |
.8 | .2 | |
1.0 | 0 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started