What must be true about the sign of the risk aversion coefficient, A, for a risk lover? Draw the indifference curve for a utility level of .05 for a risk lover.
Consider the historical data of Table 5.7, showing that the average annual rate of return on the S& P/ TSX Composite portfolio over the past 56 years has averaged about 4.24 percent more than the Treasury bill return and that the Composite standard deviation has been about 17.42 percent per year. Assume that these values are representative of investors’ expectations for future performance and that the current T-bill rate is 5 percent. Use these values to answer problems 7 to 9.