Question: The risky portfolio expected return and standard deviation is 14% and 20%, respectively. The risk free rate is 5%. The risk aversion coefficient A is

The risky portfolio expected return and standard deviation is 14% and 20%, respectively. The risk free rate is 5%. The risk aversion coefficient A is 2.5 and 4 for Mary and Kim, respectively. Answer the following questions:

A. Who is more risk averse?

B. What is the capital allocation y to the risky portfolio for each investor?

C. Suppose investors have the following utility function:

U = E(R) A²

Calculate the Utility level for each investors optimal complete portfolio.

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