The variable (A) in the utility function represents the: a) Investor’s return requirement b) The investor’s...

Question

Question

The variable (A) in the utility function represents the: a) Investor’s return requirement b) The investor’s...

The variable (A) in the utility function represents the:

a) Investor’s return requirement

b) The investor’s risk aversion coefficient

c) Certainty equivalent rate of the portfolio

d) Minimum required utility of the portfolio

e) The investor’s aversion to utility

business finance

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

Ans b) The investor’s risk aversion coefficient

The variable (A) in the utility function represents the investor’s risk aversion coefficient. A utility function is a representation which defines the preferences of an Individual for the goods or services beyond the monetary value of goods or services.

Add a comment

Answer 2

Similar Homework Help Questions

Will sellr 6. Suppose the utility is U- E(r) -0.5Ao2 for all the questions im an...

Will sellr 6. Suppose the utility is U- E(r) -0.5Ao2 for all the questions im an standard deviation risk sider a portfolio that offers an expected rate of return of 15% and a of 30%. T-bills offer a risk-free 10% rate of return. What is aversion for which the risky portfolio the maximum level of is still preferred to bills? 7. Suppose you are given the following information regarding several investments: Utility Formula Data Investment Bxpected Return E) Standard Deviation...
Consider the utility function u(x) = ax + b e^cx where a, b, c are positive...

Consider the utility function u(x) = ax + b e^cx where a, b, c are positive scalars. (a) Compute the coefficient of absolute risk aversion. (b) Describe the risk attitude represented by u(x) and how it changes as x increases. (c) Write down the equations to determine the certainty equivalent and the risk premium of a gamble X for an individual with initial wealth w > 0. (d) What is the sign of the risk premium? How does the risk...
An investor’s utility function for expected return and risk is U = E(r) − 4σ2. Which of the following would this investor prefer to invest in: A risk-free security offering a return of 8 percent per...

An investor’s utility function for expected return and risk is U = E(r) − 4σ2. Which of the following would this investor prefer to invest in: A risk-free security offering a return of 8 percent per year A risky portfolio with expected return of 14 percent per year and standard deviation of 25 percent per year Select one: a. Risk-free security b. Risky portfolio

Consider an investor with preferences given by the utility function U = E(r) - 0.5A0- and...

Consider an investor with preferences given by the utility function U = E(r) - 0.5A0- and there are two portfolios with the following characteristics: Portfolio A Portfolio B E(r) = 0.148 O=0.16 E(T) = 0.082 o= 0.068 (a) Suppose that the investor has a level of risk aversion of A = 4. Which portfolio should the investor choose? [3 Points] (6) Suppose that the investor has a level of risk aversion of A = 6. Which portfolio should the investor...
Suppose there are three assets: A, B, and C. Asset A’s expected return and standard deviation are 1 percent and 1 percent. Asset B has the same expected return and standard deviation as Asset A. However, the correlation coefficient of Assets A and B is −0

Suppose there are three assets: A, B, and C. Asset A’s expected return and standard deviation are 1 percent and 1 percent. Asset B has the same expected return and standard deviation as Asset A. However, the correlation coefficient of Assets A and B is −0.25. Asset C’s return is independent of the other two assets. The expected return and standard deviation of Asset C are 0.5 percent and 1 percent. (a) Find a portfolio of the three assets that...
An investor has a risk aversion coefficient of 5. The expected return and standard deviation of...

An investor has a risk aversion coefficient of 5. The expected return and standard deviation of the optimal risky portfolio are 15% and 25%, respectively. If the Sharpe ratio of the optimal capital allocation line is 0.48, what is the proportion of the investor’s combined portfolio that should be invested in the risky portfolio that would maximise their utility?

1. Suppose that I give you the following utility function There are two potential outcomes. With ...

1. Suppose that I give you the following utility function There are two potential outcomes. With probability 1/2 there is good news and Yo-9. If there is bad news then YB = 3. a) What is the expected value of Y? b) What is the expected utility of the consumer with the utility function above? c) Is expected utility greater than, equal to or less than the expected value? Does this mean that the consumer is risk averse, risk neutral...
16. Based on the Relative Risk Aversion (RR) and CRRA utility function (with y 1) and...

16. Based on the Relative Risk Aversion (RR) and CRRA utility function (with y 1) and the odds result: 1 0 70(,0) = 5 +7 a. What is the coefficient of risk aversion (Y) that makes roy, 0)=1, when y=100 and 0 =0.50? b. What is the coefficient of risk aversion (Y) that makes moy, 0)=1, when y=100 and 6 -0.25? c. Which individual is more risk averse based on the coefficient of risk aversion? d. What is the coefficient...
Finance

Continuing with the same fund data:YearTotal Return20162%2017-12%201810%201918%2020-5% a. The standard deviation of the fund is 12%. If the US T-bill rate is 1%, and investors’ utility functions follow the formula,U = E( r) – ½ As2 Suppose one investor has a coefficient of risk aversion of A = 2, while another investor has a coefficient of risk aversion of A=6. Calculate the Certainty Equivalent Rates for this fund for each investor.

(1) Ann has vNM utility u1 (x) = x, Bob has utility u2 (x) = √...

(1) Ann has vNM utility u1 (x) = x, Bob has utility u2 (x) = √ x and Carl has utility u3 (x) = x 3 . Who is risk neutral, risk averse and risk loving? (2) Consider the lottery P again. Find the dollar amount x such that each person is indifferent between the lottery P and $x (x is the certainty equivalent of P) (3) Calculate the Arrow-Pratt coefficients for everyone. How do they compare? Does this agree...

The variable (A) in the utility function represents the: a) Investor’s return requirement b) The investor’s...

Homework Answers

Add Answer to:
The variable (A) in the utility function represents the: a) Investor’s return requirement b) The investor’s...

Post as a guest

Earn Coins

Will sellr 6. Suppose the utility is U- E(r) -0.5Ao2 for all the questions im an...

Consider the utility function u(x) = ax + b e^cx where a, b, c are positive...

An investor’s utility function for expected return and risk is U = E(r) − 4σ2. Which of the following would this investor prefer to invest in: A risk-free security offering a return of 8 percent per...

Consider an investor with preferences given by the utility function U = E(r) - 0.5A0- and...

Suppose there are three assets: A, B, and C. Asset A’s expected return and standard deviation are 1 percent and 1 percent. Asset B has the same expected return and standard deviation as Asset A. However, the correlation coefficient of Assets A and B is −0

An investor has a risk aversion coefficient of 5. The expected return and standard deviation of...

1. Suppose that I give you the following utility function There are two potential outcomes. With ...

16. Based on the Relative Risk Aversion (RR) and CRRA utility function (with y 1) and...

Finance

(1) Ann has vNM utility u1 (x) = x, Bob has utility u2 (x) = √...

The variable (A) in the utility function represents the: a) Investor’s return requirement b) The investor’s...

Homework Answers

Add Answer to: The variable (A) in the utility function represents the: a) Investor’s return requirement b) The investor’s...

Post as a guest

Earn Coins

Add Answer to:
The variable (A) in the utility function represents the: a) Investor’s return requirement b) The investor’s...