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Jocelyn is indifferent between investing all her wealth (which is $5 million) in the risky asset and the risk-free asset. The risky asset has an
Jocelyn is indifferent between investing all her wealth (which is $5 million) in the risky asset and the risk-free asset. The risky asset has an expected rate of return of 12% per year and a standard deviation of 20% per year. The risk-free lending rate is 6% per year. The risk-free borrowing rate is 8%. Answer the following questions. a) What does it mean by Jocelyn is indifferent between investing all her wealth (which is $5 million) in the risky asset and the risk-free asset.? b) Compute Jocelyn's risk aversion coefficient. [Hint: Note the issue of decimal and percentage when using the risk aversion equation.] What would be the optimal mix of the risky and the risk-free asset for Jocelyn given your answer to (a)? Jocelyn is indifferent between investing all her wealth (which is $5 million) in the risky asset and the risk-free asset. The risky asset has an expected rate of return of 12% per year and a standard deviation of 20% per year. The risk-free lending rate is 6% per year. The risk-free borrowing rate is 8%. Answer the following questions. a) What does it mean by Jocelyn is indifferent between investing all her wealth (which is $5 million) in the risky asset and the risk-free asset.? b) Compute Jocelyn's risk aversion coefficient. [Hint: Note the issue of decimal and percentage when using the risk aversion equation.] What would be the optimal mix of the risky and the risk-free asset for Jocelyn given your answer to (a)
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