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 Y and Z are 10% and 19%, respectively. The standard deviations of assets Y and Z are 32% and 43%, respectively. The risk-free rate in this economy is 1%. If the correlation between Y and Z is 0.5, answer the following question for an investor with a risk aversion coefficient of 3.

What is the weight of stock Z in the tangency portfolio?

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