Investment X: Risk-free asset; 6% return Investment Y: Risky asset; 15% return, 25% volatility Using the...
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Investment X: Risk-free asset; 6% return Investment Y: Risky asset; 15% return, 25% volatility Using the formula U=E(r)-(1/2)* (Ao*o) unless otherwise stated. 1. If the investor can only choose one of the above investment... (a) (2 points) Write the utility for Investment X and Y respectively, in terms of A. (b) (1 point) Which investment would be chosen by a risk-neutral investor? (c) (2 points) Find the value of A such that an individual would choose Investment Y over X. Investment X: Risk-free asset; 6% return Investment Y: Risky asset; 15% return, 25% volatility Using the formula U=E(r)-(1/2)* (Ao*o) unless otherwise stated. 1. If the investor can only choose one of the above investment... (a) (2 points) Write the utility for Investment X and Y respectively, in terms of A. (b) (1 point) Which investment would be chosen by a risk-neutral investor? (c) (2 points) Find the value of A such that an individual would choose Investment Y over X.
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