Use for part A-C: Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 90 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investors expectations for future performance and that the current T-bill rate is 5%.

A. Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as follows:

WT-BILLS	WMARKET
0	1.0
.2	,8
.4	.6
.6	.4
.8	.2
1.0	0

B. Calculate the utility levels of each portfolio of Part A for an investor with a risk aversion of A = 2. What do you conclude?

C. Repeat Part B for an investor with A = 3. What do you conclude?