Question: Question 3 [5 points] The following table reports the expected return and standard deviation of different portfolios. Investment Expected Return ( Standard deviation Portfolio 1

Question 3 [5 points] The following table reports the expected return

Question 3 [5 points] The following table reports the expected return and standard deviation of different portfolios. Investment Expected Return ( Standard deviation Portfolio 1 0.12 0.30 0.50 Portfolio 2 0.15 Portfolio 3 0.21 0.16 Portfolio 4 0.24 0.21 Assume investors have mean-variance utility preferences a. What does represent? [1 point] I. Investors required return II. Investors risk aversion III. Investors demanded compensation for risk IIII. It is a quantity positively correlated with the certainty equivalent V. Preferences for one unit of return per 0.5 units of risk Circle all the correct answers. There could be more than one. b. Which portfolio would an investor with select? [2 points] c. Which portfolio would a risk-neutral investor select? [2 points] Question 3 [5 points] The following table reports the expected return and standard deviation of different portfolios. Investment Expected Return ( Standard deviation Portfolio 1 0.12 0.30 0.50 Portfolio 2 0.15 Portfolio 3 0.21 0.16 Portfolio 4 0.24 0.21 Assume investors have mean-variance utility preferences a. What does represent? [1 point] I. Investors required return II. Investors risk aversion III. Investors demanded compensation for risk IIII. It is a quantity positively correlated with the certainty equivalent V. Preferences for one unit of return per 0.5 units of risk Circle all the correct answers. There could be more than one. b. Which portfolio would an investor with select? [2 points] c. Which portfolio would a risk-neutral investor select? [2 points]

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