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Problem $11-06$

As the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms$.$ A has a risk$-$tolerance factor of $8,$ while Mr$.$ B has a risk$-$tolerance factor of $27.$ The characteristics for four model portfolios follow:

ASSET MIX

Portfolio Stock Bond ER $\backslash$sigma $2$

$16\%94\%9\%6\%$

$225751010$

$367331114$

$488121224$

Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places.

Portfolio Ms$.$ A Mr$.$ B

$1$

$2$

$3$

$4$

Which portfolio represents the optimal strategic allocation for Ms$.$ A$?$ Which portfolio is optimal for Mr$.$ B$?$

Portfolio

$-$Select$-$

represents the optimal strategic allocation for Ms$.$ A$.$ Portfolio

$-$Select$-$

is the optimal allocation for Mr$.$ B$.$

For Ms$.$ A$,$ what level of risk tolerance would leave her indifferent between having Portfolio $1$ or Portfolio $2$ as her strategic allocation? Round your answer to the nearest whole number.