Question: In order to construct an optimal portfolio which maximizes a clients utility score, which risky asset, either a FTSE100 index tracking portfolio or your individually

In order to construct an optimal portfolio which maximizes a clients utility score, which risky asset, either a FTSE100 index tracking portfolio or your individually chosen share (Severn Trent PLC), should be used to mix with a risk free asset?

Using your clients degree of risk aversion A = 2, a utility score function U(,)= -1/2A2 and a risk-free rate of 0.1% per year, calculate the optimal weight allocation into the risk free asset for this client. Your discussion should be supported by relevant portfolio theories.

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