Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return. Suppose that

image text in transcribed

Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return. Suppose that the U.S. market is your risky portfolio. Average Annual Returns U.S. Equity Market 1-Month Excess Standard Sharpe Period 1927-2018 U.S. equity T-Bills return Deviation Ratio 11.77 3.38 8.34 20.36 0.41 1927-1949 9.40 0.92 8.49 26.83 0.32 1950-1972 14.00 3.14 10.86 17.46 0.62 1973-1995 13.38 7.26 1996-2018 10.10 2.21 6.11 7.89 18.43 0.33 18.39 0.43 a. If your risk-aversion coefficient is A = 4.5 and you believe that the entire 1927-2018 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is u = E(r) 0.5 Ag. (Do not round intermediate calculations. Round your answers to 2 decimal places.) - T-bills Equity % % b. If your risk-aversion coefficient is A = 4.5 and you believe that the entire 1973-1995 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? (Do not round intermediate calculations. Round your answers to 2 decimal places.) T-bills % Equity %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Understanding Financial Statements

Authors: Lyn Fraser, Aileen Ormiston

11th edition

133874036, 978-0133874037

More Books

Students also viewed these Finance questions

Question

=+c) What might you do instead?

Answered: 1 week ago