Consider a portfolio consisting of two risky assets with initial values of $100 and $450, that have a correlation coefficient of ρ=0.5, whose rates of returns follow a bivariate normal distribution and:

(a) Suppose that the initial value of the portfolio was $4000. Determine the allocation weights w1 and w2 for Assets 1 and 2 in a maximum expected utility portfolio if the utility used is u(v)=−e^(−0.001∗v).

(b) Using the results in part (a), determine the number of shares x1 and x2 of Assets 1 and 2 in the portfolio.

(c) Using the rounded results from above, determine the expected rate of return on the maximum expected utility portfolio.

(d) Determine the standard deviation in the rate of return on the maximum expected utility portfolio.

Answer rating: 100% (QA)

a The weights of the two assets in the portfolio are w1 011 and w2 089 v1 100 v2 450 05 uv e0001v Fr... View the full answer