3 Greta has risk aversion of A = 4 when appled to return on wealth...
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3 Greta has risk aversion of A = 4 when appled to return on wealth over a one year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of 1 year strategies (All rates are annual and continuously compounded) The S&P 500 risk premium is estimated at 10% per year with a standard deviation of 22%. The hedge fund risk premium is estimated at 14% with a standard deviation of 37%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S&P 500 and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim -1. Assuming the correlation between the annual returns on the two portfolios is indeed zero, what would be the opemal asset allocation (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places) book SEP Made 3-2. What the expected nik premium on the port Do nor round intermediate calculation, Enser your answer as decim Founded to 4 places)
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