Question: The following table reports the expected return and standard deviation of different portfolios. Investment Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4 Expected Return (E(R))

The following table reports the expected return and standard deviation of

The following table reports the expected return and standard deviation of different portfolios. Investment Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4 Expected Return (E(R)) 0.12 0.15 0.21 0.24 Standard deviation (0) 0.30 0.50 0.16 0.21 Assume investors have mean-variance utility preferences U = E(R) - 0.5A02 a. What does A represent? [1 point I. Investors required return II. Investors risk aversion Investors demanded compensation for risk It is a quantity positively correlated with the certainty equivalent V. Preferences for one unit of return per 0.5 units of risk III. IV. Circle all the correct answers. There could be more than one. b. Which portfolio would an investor with A = 4 select? (2 points c. Which portfolio would a risk-neutral investor select? 2 points)

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