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# There are two risky assets, D and E . ?The expected returns of D and E are 8% and 12%, respectively. ?The standard deviation of D and E are 10% and 25%, respectively. The correlation between the assets is positive and less than 1. (a) Suppose an investor is indifferent between holding 100% in D and holding 100% in E

There are two risky assets, *D * and *E *. ?The expected returns of *D * and *E * are 8% and 12%, respectively. ?The standard deviation of *D * and *E * are 10% and 25%, respectively. The correlation between the assets is positive and less than 1.

(a) Suppose an investor is indifferent between holding 100% in *D * and holding 100% in *E *. ?What is his risk aversion *A *?

(b) From the different combinations of *D * and *E *, you can identify the portfolio that gives you the lowest standard deviation, which is the minimum variance portfolio, *A *. Can *A *, *D *, and *E * lie on the same utility indifference curve for the investor in part (a)? ?Briefly explain. ?

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