Question: 6. Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly

6. Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility function is U = E(r) 0.5 A². (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places.)

WBILL WINDEX U(A=3)

0.0 1.0

0.2 0.8

0.4 0.6

0.6 0.4

0.8 0.2

1.0 0.0

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