The indifference utility function is given as U(E(r), o) = E(r)  0.5Ao, where A is...
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The indifference utility function is given as U(E(r), o) = E(r)  0.5Ao, where A is a risk aversion coefficient (i) How do we determine the optimal portfolio consisting of two stocks that maximizes the utility? (ii) Two risky stocks with the following characteristics exist: Stock 1 2 Expected return Standard deviation E(ri) 0.20 0.15 (0) 0.45 0.32 Correlation coefficient P1,2 = 0.20 What are the optimal weights of these stocks (for the optimal portfolio) for an investor with A = 4 that maximize this investor's utility? What about another investor with A = 2 ? The indifference utility function is given as U(E(r), o) = E(r)  0.5Ao, where A is a risk aversion coefficient (i) How do we determine the optimal portfolio consisting of two stocks that maximizes the utility? (ii) Two risky stocks with the following characteristics exist: Stock 1 2 Expected return Standard deviation E(ri) 0.20 0.15 (0) 0.45 0.32 Correlation coefficient P1,2 = 0.20 What are the optimal weights of these stocks (for the optimal portfolio) for an investor with A = 4 that maximize this investor's utility? What about another investor with A = 2 ? The indifference utility function is given as U(E(r), o) = E(r)  0.5Ao, where A is a risk aversion coefficient (i) How do we determine the optimal portfolio consisting of two stocks that maximizes the utility? (ii) Two risky stocks with the following characteristics exist: Stock 1 2 Expected return Standard deviation E(ri) 0.20 0.15 (0) 0.45 0.32 Correlation coefficient P1,2 = 0.20 What are the optimal weights of these stocks (for the optimal portfolio) for an investor with A = 4 that maximize this investor's utility? What about another investor with A = 2 ?
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Absolutely lets find the optimal portfolio weights for these two investors Finding the Optimal Portfolio For a twoasset portfolio the expected return Er and standard deviation can be calculated based ... View the full answer
Related Book For
Microeconomics
ISBN: 9781464146978
1st Edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson
Posted Date:
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