An investor has the utility function: U(e(r), (r)) = E(r) - 0,5- (r) He can invest...

 

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An investor has the utility function: U(e(r), ²(r)) = E(r) - 0,5-² (r) He can invest in the risk free asset, which returns 5%, and an index fund, which returns 8% in expectation, with a variance of 0,04. What is the optimal weight of each of these two assets in his portfolio? An investor has the utility function: U(e(r), ²(r)) = E(r) - 0,5-² (r) He can invest in the risk free asset, which returns 5%, and an index fund, which returns 8% in expectation, with a variance of 0,04. What is the optimal weight of each of these two assets in his portfolio?

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To determine the optimal weight of each asset in the investors portfolio we need to find the asset a... View the full answer