Question: Q#1. [10POINTS] Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged

Q#1. [10POINTS] Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investors expectations for future performance and that the current T-bill rate is 5%.

A.Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as follows: WbillWindex010.20.80.40.60.60.40.80.210B.Calculate the utility levels (i.e., use the utility function given in Q#3 below) of each portfolio of Problem Afor an investor with A =2. What do you conclude? C.Repeat Problem B for an investor with A = 3. What do you conclude?

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