What is his optimal allocation

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Reference no: EM131496470

Use the information in problem 12, and assume your client’s utility function is U = E(r) – 1/2 Aσ2.

(a) What is his optimal allocation y, if his risk aversion, A, is 2, 5, or 10?

(b) What happens to the allocation decision if your client becomes risk neutral (A approaches 0)?

(d) What if the standard deviation of your fund return goes up to 35% (use A = 2)?

information from problem 12: assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%.

Reference no: EM131496470

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