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

Investors maximize the utility function U = E(r) - Ao, where E(r)

Investors maximize the utility function U = E(r) - Ao, 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 A and B are 10% and 16%, respectively. The standard deviations of assets A and B are 32% and 45%, respectively. The risk-free rate in this economy is 3%. If the correlation between A and B is 0.3, answer the following four questions for an investor with a risk aversion coefficient of 4. What would be the weight of the risk-free asset in an optimal portfolio that includes the risk-free asset, asset A, and asset B?

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