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Consider historical data showing that the average annual rate of return on the S&P 5 0 0 portfolio over the past 8 5 yearsRefer the
Consider historical data showing that the average annual rate of return on the S&P portfolio over the past yearsRefer the table below on the average excess return of the US equity market and the standard deviation of that excess
return. Suppose that the US market is your risky portfolio.
Required:
a If your riskaversion coefficient is and you believe that the entire period is representative of future
expected performance, what fraction of your portfolio should be allocated to Tbills and what fraction to equity? Assume
your utility function is
b What if you believe that the period is representative?
Complete this question by entering your answers in the tabs below.
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If your riskaversion coefficient is and you believe that the entire period is representative of future
expected performance, what fraction of your portfolio should be allocated to Tbills and what fraction to equity? Assume your
utility function is
Note: Do not round intermediate calculations. Round your answers to decimal places.
has averaged roughly more than the Treasury bill return and that the S&P standard deviation has been about
per year. Assume these values are representative of investors' expectations for future performance and that the current T
bill rate is
Calculate the utility levels of each portfolio for an investor with Assume the utility function is
Note: Do not round intermediate calculations. Round your answers to decimal places. Negative amounts should be
indicated by a minus sign.
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