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The risky portfolio expected return and standard deviation is 14% and 20%, respectively. The risk free rate is 5%. The risk aversion coefficient A is
The risky portfolio expected return and standard deviation is 14% and 20%, respectively. The risk free rate is 5%. The risk aversion coefficient A is 2.5 and 4 for Mary and Kim, respectively. Answer the following questions:
A. Who is more risk averse?
B. What is the capital allocation y to the risky portfolio for each investor?
C. Suppose investors have the following utility function:
U = E(R) A2
Calculate the Utility level for each investors optimal complete portfolio.
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