Question 11

5 Points

66	You have obtained the following data on the S&P 500 Index and T-Bills:
67	Period of time	1926 - 2015
68	Average S&P Return	11.77%
69	Average Tbill Return	3.47%
70	Risk Premium	8.30%
71	SD of S&P	20.59%
72	Sharpe Ratio	0.4031
73	Portfolio Split 50/50 with risky and risk free	50%
74	You have a risk aversion coefficient where A =	4.0
75	The higher that A becomes, the more averse you are to risk.
76	This level of A will impact both your expected return and standard deviation of a portfolio.

What proportion of investment should be in the S&P 500 Index (y) ?

Proportion of Risky Portfolio (y) = (E(rp) - rf) / (A*Variance of Risky Portfolio)

49.94%

47.75%

48.94%

51.06%