Homework Answers
Given,
risk aversion of an investor A = 4
standard deviation of portfolio SD = 16%
Weight in the stock y = 1
weight of the risky portfolio is
y = (E(p) - Rf)/A*SD^2
So, E(p) - Rf = 1*0.04*16*16 = 10.24%
So, implied risk premium(E(p) - Rf) = 10.24%
When A = 2
now implied risk premium (E(p) - Rf) = 1*0.02*16*16 = 5.12%
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show in excel!
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show in excel!
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show in excel!
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show in excel!
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