Question: Your client has a risk aversion of A = 3 when applied to return on wealth over a 1-year horizon. She is looking at two

Your client has a risk aversion of A = 3 when applied to return on wealth over a 1-year horizon. She is looking at two portfolios:

The S&P 500 with a Risk Premium of 8% and a standard Deviation of 20%.

A Hedge Fund with a Risk Premium of 12% and a standard Deviation of 35%

There is an annual correlation of .6200

a) What is the Expected Return of this Portfolio?

b) What is the standard deviation of this Portfolio?

c) What is the Sharpe Ratio of this portfolio?

d) Given the risk aversion of 3.0, how much will she invest in the risky assets of this portfolio?

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