Question
Hi can u please help me answer these questions please and show the steps and answer thank you! Dani has to decide how to combine
Hi can u please help me answer these questions please and show the steps and answer thank you!
Dani has to decide how to combine three assets whose retums are denoted X1, X2 an X3. Each of these assets yields 24 with probability 0.5 and 12 with probability 0.5. The random returns are independent. Dani is risk averse and his utility function is u(x)=150(x-10)^1/3, where x is the monetary payoff.
Question A) Dan considers another combination Let Z = 0.25 X1 + 0.75 X2
Before any computation, explain why Dani would prefer Y over Z Then, show the computation.
Question B) Dan considers another combination Let Z = 0.25 X1 + 0.75 X2
Before any computation, explain why Dani would prefer Y over Z Then, show the computation.
Question C) X1 and X2 are uncorrelated. If Dani had the choice, would he prefer X1 und X2 to be correlated or not?
Explain.
Question D) Dani now thinks about combining X1, X2 and X3
What would be the weights of each asset in an optimal portfolio?
Explain the intuition without computing
Question E) Compute the expected utility of such an optimal portfolio with X1. X2 and X3 conclude.
How would the answers to the previous questions be afferent it Dani won risk-neutral?
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