Consider the following investments. Expected return Standard deviation Portfolio A: 10% 5% Portfolio B: 14% 4% Portfolio
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Question:
Consider the following investments.
Expected return Standard deviation
Portfolio A: 10% 5%
Portfolio B: 14% 4%
Portfolio C: 17% 8%
Required:
(1). If L R (the level of return which your portfolio would not be below) equals 5%, which is your preferred portfolio for your investment according to Roy’s safety-first criterion? Assume returns are continuously distributed
(2). If the Kataoka α probability equals 5%, which is your preferred portfolio for your investment according to Kataoka’s safety-first criterion?
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