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 28% 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=2. Assume the utility function is u = E(r) - 0.5 x Ao². (Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign.) WBills 0.0 0.2 04 0.6 0.8 1.0 Windex 1.0 0.8 0.6 04 0.2 0.0 U(A=2)

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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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 28% 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-2. Assume the utility function is U = E(r) - 0.5 x Ao². (Do not round
intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign.)
WBills
0.0
0.2
0.4
0.6
0.8
1.0
Windex
1.0
0.8
0.6
0.4
0.2
0.0
U(A=2)
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 28% 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-2. Assume the utility function is U = E(r) - 0.5 x Ao². (Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign.) WBills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A=2)
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