Consider two investors A and B. Investor As risk aversion coefficient _A = 4.5, and Bs risk aversion coefficient B = 3.8. There is one risky asset, whose expected return is 11 percent and the 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 three investors is to maximize E( _rc )0.005 _i ² _c , where E( _rc ) and ² _c are the expected return and the variance of an investors portfolio and i = A, B.

(a) What is investor As optimal portfolio weight in the risky asset?

(b) What is investor Bs optimal portfolio weight in the risky asset?