Q2.1 Suppose investors have preference described by the following utility

function withA> 0:

=() 1/2²

Each investor has to choose between three portfolios with the following characteristics:

()=20%=20%

()=12%=22%

()=15%=28%

a. Which portfolio would every investor pick and why?

b. What utility would an investor with a risk aversion parameter A=3 get from the three portfolios?

c. What must be the risk aversion of an investor that is indifferent between picking portfolio B and portfolio C?