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In utility function U = En - 0.5A02, A is a measure of investors' degree of risk aversion. Which of the following statements is incorrect?
In utility function U = En - 0.5A02, A is a measure of investors' degree of risk aversion. Which of the following statements is incorrect? a) For a risk lover, A is less than zero. Ob) For a risk-averse investor, Acould be zero or positive. Oc) For a risk-averse investor, A is greater than 0. d) Risk-neutral investors only care about returns of investments but not risks. e) For a risk-neutral investor, A equals to zero. Question 5 (1 point) You have $500,000 available to invest. The risk-free rate, as well as your borrowing rate, is 2%. The return on the risky portfolio is 12%. If you wish to earn a 15% return, you should a) borrow $150,000 and invest $650,000 in the risky portfolio. b) invest $100,000 in the risk-free asset and $400,000 in risky portfolio. c) borrow $375,000 and invest $825,000 in the risky portfolio. d) borrow $100,000 and invest $600,000 in the risky portfolio. e) Invest $125,000 in risk-free asset and $375,000 in risky portfolio. Previous Page Next Page Page 5 of 18
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