Question
Suppose Microsoft has mean 6.5% and standard deviation 10%, and GameStop has standard deviation 30%. The risk-free rate is 5%. Alice and Bob have mean-variance
Suppose Microsoft has mean 6.5% and standard deviation 10%, and GameStop has standard deviation 30%. The risk-free rate is 5%. Alice and Bob have mean-variance utility. A. Alice is indifferent between Microsoft, GameStop, and the risk-free asset. What is the mean return of GameStop? Hint: first compute Alice's risk aversion. In the first box, answer with 1 decimal e.g. 12.2 (no % sign). B. Alice's optimal portfolio has mean 20% and standard deviation 25%. Bob's optimal portfolio has mean 14%. What is the standard deviation of Bob's optimal portfolio in percentage points? In the second box, answer an integer, e.g., for a standard deviation of 0.14 or 14% answer 14 (without the % sign). C. Whose indifference curves are steeper? In the third box, answer A for Alice, B for Bob.
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