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 27% 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. (Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign. )
WBills U(A = 2) Windex 1.0 0.0 0.2 0.8 0.4 0.6 0.6 0.4 0.8 0.2 1.0 0.0Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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