John has a utility function given by the expression U(x) - E(r) - YA(s*)_ Where E(r) is the

expected return On an asset and s is the standard deviation of returns on that asset

John has the Opportunity to purchase the XJK security that returns 27% with 23% probability and returns 9% the remainder of the time. The security has a price of 33$ and A=11$

a) What is the risk-neutral valuation of the XJK security? Recall the risk-neutral value is simply the expected value

b) Using the utility function above, find John's risk-averse valuation of XIK security. Hint: Find John's certainty equivalent (CEQ) for this security's payoff.

c) if the expected annual return on the market is 5.805%, the standard deviation of the market return is 9.2% and the risk-free rate for the next year is 1.29% then what is John's optimal percent of funds that he'll invest in the market?

d) Use the rates given in part c to answer this question, If a stock had a Beta of 2.93 what would be the expected return for that stock in the coming year?

U(x) = E(r) -1/2 As^2