Refer the table below on the average risk premium of the S&P 500 over T-bills, and the

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Refer the table below on the average risk premium of the S&P 500 over T-bills, and the standard deviation of that risk premium. Suppose that the S&P 500 is your risky portfolio.
Average Annual Returns S&P 500 Portfolio Sharpe Ratio (Reward-to- Volatility) S&P 500 1-Month Risk Standard Premium Devi

Average annual return on large stocks and 1-month T-bills; standard deviation and Sharpe ratio of large stocks over time
*The probability that the estimate of the Sharpe ratio over 1926-2012 equals the true value and that we observe the reported, or an even more different Sharpe ratio for the sub-period.
a. If your risk-aversion coefficient is A = 3.5 and you believe that the entire 1926-2012 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is U = E(r) - 0.5 × Aσ2.
b. If your risk-aversion coefficient is A = 3.5 and you believe that the entire 1968-1988 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity?

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Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...
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Investments

ISBN: 9780073530703

9th Edition

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

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