Consider two investors A and B. Investor A's risk aversion coefficient ?_A = 4.5, and B's risk
Fantastic news! We've Found the answer you've been seeking!
Question:
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 returnis 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(rc)?0.005?i(?_c)^2 , where E(rc) and (?_c)^2 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?
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/06/667b1e512c59f_721667b1e5105a20.jpg)
Posted Date: