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Question 3 Karen has a coefficient of risk aversion A=3.8. She has two securities she can invest in: Riskless government debt with a return of

Question 3

Karen has a coefficient of risk aversion A=3.8. She has two securities she can invest in: Riskless government debt with a return of 4%, and a risky stock with an expected return of 18% and a standard deviation of 0.28.

What percentage of her assets should Karen invest in each of these securities, given her attitude towards risk?
What is the expected return and standard deviation of the portfolio from Part A?
What is the Sharpe Ratio of the portfolio from Part A?

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