= 04) Assume that your utility function is equal to U = [E(r)]? A02. You create a portfolio of one risky stock with the expected return of Mpand standard deviation of Op, and one risk-free stock with the expected return of rf. If you want to maximize your utility function, what portion of your wealth should go the risky stock? (10 points) [hint: Your answer will have a general format, represented in terms of given parameters (i.e., it is not a number). To find the answer, plug in the expected return and variance formula for a portfolio of one risky asset and one risk-free asset, and then follow the FOC rule.] |