Question: Use the utility function u = E(rp) 0.5A2 p where A is the risk aversion parameter and A = 3.5. Use the average annual return

Use the utility function u = E(rp) 0.5A2 p where A is the risk aversion parameter and A = 3.5. Use the average annual return on the S&P 500 as E(rp). Use the average annual interest rate on the US Government 10-year treasury bond over the past decade as rf . Solve for the investors optimal allocation between the risky and the risk-free asset.

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