Required: a. If your risk-aversion coefficient is A = 4.9 and you believe that the entire 1927-2021 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is u = E(r) - 0.5 × Aσ². b. What if you believe that the 1975-1998 period is representative?

4. Explain what the Capital Asset Pricing Model (CAPM) is and calculate and explain the result of the CAPM based on the following data. a. Expected Return: 8% b. Risk-free rate: 4% c. Beta of the investment: 1.2 ER=Rf+B(ERm - Rf) where: ER = expected return of investment Rf risk-free rate B;= beta of the investment - (ERm - Rf) = market risk premium

What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 25% SDA = 18% WA = 0.75 COVA, B = -0.0009 Select one: A. 13.65% B. 20 U ODN 20.0% C. 18.64% D. 22.5% Asset (B) E(R₂) = 15% SDB = 11% WB = 0.25

Assume a utility function of ? = ?[?] − 1 ?? 2. Which statement(s) is/are correct about investors with this utility function? [I] An investor with a higher degree of risk aversion chooses the optimal portfolio with a higher risk premium [II] An investor with a higher degree of risk aversion chooses the optimal portfolio with lower risk [III] An investor with a higher degree of risk aversion chooses the optimal portfolio with a higher sharpe ratio [IV] The extent to which the investor dislikes risk is captured by ? 2 A. [II] only B. [I], [II] only C. [III] , [IV] only D. [II], [IV] only E. [I], [II], [III] only