Question: Investment Expected Return () Standard deviation () Portfolio 1 0.12 0.30 Portfolio 2 0.15 0.50 Portfolio 3 0.21 0.16 Portfolio 4 0.24 0.21 Assume investors

Investment

Expected Return ()

Standard deviation ()

Portfolio 1

0.12

0.30

Portfolio 2

0.15

0.50

Portfolio 3

0.21

0.16

Portfolio 4

0.24

0.21

Assume investors have mean-variance utility preferences

  1. What does A represent?
    1. Investors required return
    2. Investors risk aversion
    3. Investors demanded compensation for risk
    4. It is a quantity positively correlated with the certainty equivalent
    5. Preferences for one unit of return per 0.5 units of risk

Circle all the correct answers. There could be more than one.

  1. Which portfolio would an investor with A=4 select?
  2. Which portfolio would a risk-neutral investor select?

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