Question
Ferdinand has a coefficient of risk aversion of 2.9. He is thinking of investing in a portfolio that is 53% Asset 1, and the remainder
Ferdinand has a coefficient of risk aversion of 2.9. He is thinking of investing in a portfolio that is 53% Asset 1, and the remainder invested in Asset 2. Asset 1's returns have a mean of 6.8% and a standard deviation of 7.3%. Asset 2's returns have a mean of 5.7% and a standard deviation of 6.1%. The coefficient of correlation between these two assets is 0.49. What is Ferdinand's utility from this portfolio? Please enter your answer as a decimal to 4 places.
If you offered Ferdinand an opportunity to swap the portfolio above for a risk free asset paying 5%, would he take it? Why or why not?
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