Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has average roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 24% per year. Assume these values are representative of investors expectations for future performance and that the current T-bil rate is 3%. Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility function is u - E(e) - 0.5 - A. (Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sigs WBis Windex U(A - 2) 0.0 1.0 02 08 04 06 0.6 0.4 0.8 02
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has average roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 24% per year. Assume these values are representative of investors expectations for future performance and that the current T-bil rate is 3%. Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility function is u - E(e) - 0.5 - A. (Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sigs WBis Windex U(A - 2) 0.0 1.0 02 08 04 06 0.6 0.4 0.8 02
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 24% per year. Assume these
values are representative of investors' expectations for future performance and that the current T-bill rate is 3%.
Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility function is u - E(e) - 0.5 - Ao. (Do not
round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign.
WBIl
Windex
U(A- 2)
0.0
1.0
0.2
0.8
04
0.6
0.6
04
08
02
1.0
0.0
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