Investment Analysis Qns 2

[2] Mr. Tom is a risk averse investor. Before the COV|D19 pandemic [i.e., preCOVID19 period) his risk aversion coefficient was 2 and his optimal investments in a risky portfolio and riskfree asset were AU$60,000 and AU$ 40,000 respectively. Standard deviation of his complete portfolio was 21% and riskfree rate was 5%. During the COVID19 pandemic Mr. Tom becomes more risk averse and his risk-aversion coefficient increases to 4. Riskfree rate drops to 3% and return on risky portfolio increases by 2% (i.e., if the preCO'v'ID19 period return on risky portfolio is X%, return on risky portfolio during the COV|D19 crisis becomes K% + 2%) and standard deviation of risky portfolio rises to 45%. Based on these data, compute the following for Mr. Tom: [a] Optimal investment proportion during COVID19 crisis period in risky portfolio (b) Standard deviation of complete portfolio during COV|D19 crisis (c) Expected return of complete portfolio during COVID19 crisis (d) {omment on the changes in Mr. Tom's investment proportions in risky portfolio and riskfree asset between preCOV1D19 and during COVID19 periods. [You must show all workings) [10 marks)