exercice 5 :

Exercise Nb6 2 points

For the utility function U = E(R) *3*s

2

, what is the risk aversion parameter?

2

a) 1,5

b) 3

c) 3*s

2

For the risky investment with mean return E(R)=10% and volatility s=20%, what is the return of

the certainty equivalent? (The certainty equivalent is the risk free investment with return Rf and

same utility)

a) 4%

b) 8%

c) 2%

Exercise Nb6 - 2 points For the utility function U = E(R) -"*3*s?, what is the risk aversion parameter? 1 a) 1,5 b) 3 c) 3*s? For the risky investment with mean return E(R)=10% and volatility s=20%, what is the return of the certainty equivalent? (The certainty equivalent is the risk free investment with return Rf and same utility) a) 4% b) 8% c) 2% Use the table for the question(s) below. Consider the following realized annual returns: Year End 2009 2010 2011 2012 2013 Index Realized Return -15% -20% 35% 3% 6% Turnby 1 Soint