You are in charge of client risk preference research at a pension fund. You focus on two groups of participants, those aged around 50 and those nearing retirement aged over 60.

You determine that the 60-year-old group is indifferent between investing all of their savings either in the risk-free asset (interest rate of 5%), that might go higher or in the stock market (which you assume has a slightly lower risk premium of 6.0% and a long-term standard deviation of 19%, BUT is more Volatile with Ukraine War, interest rate and risk of recession (23%).

6. What is the risk aversion of 60 year-olds using long run historical market returns (10%), and long run and Rf (3%)? NOTE the changed numbers in this part of question.