Consider two investors A and B. Investor A's risk aversion coefficient ?_A = 4. 5, and

B's risk aversion coefficient ?_B = 3. 8. There is one risky asset, whose expected

return is 11 percent and standard deviation is 14 percent. Suppose the risk-free

borrowing rate is 4 percent and the risk-free saving rate is 3 percent. The objective

of the two investors is to maximize E(r_c) - 0.005?_i?_c², where E(r_c) and ?_c² are the expected return and the variance of an investor's portfolio and i = A, B.

(a) What is investor A's optimal portfolio weight in the risky asset?

(b) What is investor B's optimal portfolio weight in the risky asset?

\f