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Consider historical data showing that the average annual rate of return on the S&P 500 portfolio...

Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 27% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 6%.

calculate the utility levels of each portfolio for an investor with A = 3 Assume the utility function is U = E(r) − 0.5 × Aσ2. (Do not round intermediate calculations. Round your answers to 4 decimal places.)

WBills

WIndex

U(A = 3)

0.0

1.0

0.2

0.8

0.4

0.6

0.6

0.4

0.8

0.2

1.0

0.0
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Answer #1

MiL ndex 1.0 FO)-DSXA A-3) 67xo)t(14yx1) A./2 O. (67x0.2t(14x0.) 12-4f Lb1,Xo.tl) 10.8f 0.y (61.x0.+17x04) 9-27 O.4 L67xas)tlDate: U-Ea)0.5XA WA 01y(o 5 x(2x3 U 0.030 65 0 0.0307 ai1241oSYL0.23x3 O0 1465 0 (0.01411 0.2 UeOlos (lo 5x(0223 b0.00135 or

2 0
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