Question: Investors maximize the utility function U= E(r) A ^2, where E(r) is the expected return on an asset, A is the risk aversion coefficient, and

Investors maximize the utility function U= E(r) A ^2, where E(r) is the expected return on an asset, A is the risk aversion coefficient, and is the standard deviation of an asset. The expected returns on assets X and Y are 10% and 20%, respectively. The standard deviations of assets X and Y are 30% and 41%, respectively. The risk-free rate in this economy is 3%. If the correlation between X and Y is 0.4, answer the following question for an investor with a risk aversion coefficient of 3. What would be the weight of the risk-free asset in an optimal portfolio that includes the risk-free asset, asset X, and asset Y?

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