Suppose that you are an investor with a risk aversion coefficient of A = 5. You are deciding about portfolio allocation between the stock market index portfolio and a riskless asset. To come up with the expected market return, you regress one-year market returns on the P/D ratio and you obtain an intercept of 0.26 and a slope of -0.004, both of which are statistically significant. The current value of P/D is 40. Assume that the risk-free rate is 1% and your best estimate of conditional market volatility over the next year is 15%. What is the optimal weight of the market index in your portfolio allocation?

Group of answer choices

25.0%

20.0%

80.0%

75.0%