Problem 11-06

As the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms. A has a risk-tolerance factor of 9, while Mr. B has a risk-tolerance factor of 24. The characteristics for four model portfolios follow:

ASSET MIX
Portfolio	Stock		Bond		ER		2
1	8	%	92	%	8	%	8	%
2	21		79		9		10
3	63		37		10		14
4	84		16		11		25

Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places.

Portfolio	Ms. A	Mr. B
1
2
3
4

Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B?

Portfolio -Select- (1,2,3,4) represents the optimal strategic allocation for Ms. A. Portfolio -Select- (1,2,3,4) is the optimal allocation for Mr. B.

For Ms. A, what level of risk tolerance would leave her indifferent between having Portfolio 1 or Portfolio 2 as her strategic allocation? Round your answer to the nearest whole number.