Suppose that an investor with preferences G(p, o) = p ao a > 0 optimally chooses...
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Suppose that an investor with preferences G(p, o) = μp ao a > 0 optimally chooses a portfolio composed of only two assets: a single risky asset with expected return u, and vari- ance o3, and a risk-free asset which yields ro. Denote by q the proportion of the portfolio invested in the risky asset, and by Hp = qu; + (1-9)ro the expected return on the portfolio. denotes the variance of the portfolio. After obtaining the ex- pression for the portfolio risk-return trade-off, find the investor's optimal proportion of initial wealth invested in the risky asset. : Suppose that an investor with preferences G(p, o) = μp ao a > 0 optimally chooses a portfolio composed of only two assets: a single risky asset with expected return u, and vari- ance o3, and a risk-free asset which yields ro. Denote by q the proportion of the portfolio invested in the risky asset, and by Hp = qu; + (1-9)ro the expected return on the portfolio. denotes the variance of the portfolio. After obtaining the ex- pression for the portfolio risk-return trade-off, find the investor's optimal proportion of initial wealth invested in the risky asset. :
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