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Juanita. an exchange student at the IESEG School of Management, received 4.000% aaa gift from her parents when leaving Brazil. She is nsk-averse and her

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Juanita. an exchange student at the IESEG School of Management, received 4.000% aaa gift from her parents when leaving Brazil. She is nsk-averse and her preferences are described by the square-root utility of terminal wealth. When in France. Juanita decided to put seat. of her wealth in government bonds that yield 3%, and to buy a car for EJJUDIS. Moreover. Juanita is aware of the fact that her new car can be stolen along the course of this yearr as it will be parked in the street. She estimates that the probability of being stolen her car is 3%. She also knows that her car will sell for 1 300% in one year when she leaves France. 1. Juanita realizes it might be wise to use part of her savings to pay for an insurance on her car. She collects information and finds an insurance company that proposes to repay her the market price of the car in 1 year if it gets stolen against aninsurance premium of 500%. Should she pay for that insurance or look for another insurer? 2. Juanita's best friend Heinrich had a car crash. Generously. Juanita donates her car to Heinrich and let him deal with the insurance. At the same time. Juanita starts her classes at IESES and follows a course in Portfolio Management. She then decides to invest a share of rest. of her remaining savings in a risky portfolio that yields an expected return of 3.51% and a standard deviation of retun'Is of 3.46%. 1ll'iihat is her coefficient of risk-aversion if her expected utility is expressed as a function of the expected return and the standard deviation of her complete portfolio? 3. Juanita built the risky portfolio thatcorresponds to her previous estimates in b] from two existing mutual funds among the list below. The two mutual funds she selected dominate the others in the mean-standard deviation space. Determine the correlation coefficient between the two funds used to build her risky portfolio. Standard Deation Mutual Fund An 3;. Birds 4.? % Mutual Fund Blue Bird 4 % Mutual Fund Cormorant 2.? % Mutual Fund Dove 0.3 % Mutual Fund Ealc . 3.2 % In your opinionr do you think that the risky portfolio constructed by Juanita is optimal? Justify your

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