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Q1(b) Consider the table below with data on European risky assets for the past 10 years. The European risk-free rate is -0.2%. Use the data
Q1(b) Consider the table below with data on European risky assets for the past 10 years. The European risk-free rate is -0.2%. Use the data in the table to draw a capital allocation line (CAL) for investors in these assets which might best describe the investment environment facing these investors. Explain the key features of this CAL. European Risky Assets (Source MSCI 2017) 3-year 5-year 10-year 4.96% 8.97% 1.69% Annual Returns (% p.a.) 13.1% 12.8% 20.4% Annualised Standard Deviation (%) [12 Marks] Q1(c) What is a utility function? Draw three graphs to show how a utility function can assume different functional forms. [9 marks] [TOTAL MARKS: 25]
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