Question: 3. (5 points An agent has mean-variance preferences. In particular, her utility for a portfolio with mean return and standard deviation is: U =

3. (5 points An agent has mean-variance preferences. In particular, her utility for a portfolio with mean return and standard deviation is: U = - 302 2 (5) Two funds are available to the investor, each with normally distributed returns. Let (, 0) = (008, 0.16), (2, 2) = (003, 0.05) and let the correlation coefficient of returns 0.12. P12 = 1. Compute the expected utility of an investor who invests 70% of her wealth in fund 1 and the rest in fund 2.

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