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11. Suppose that a fund that tracks the S&P has mean E(Rm) = 16% and...

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Finance

11. Suppose that a fund that tracks the S&P has mean E(Rm) = 16% and standard deviation m = 10%, and suppose that the T-bill rate Rf = 8%. Answer the following questions:

Assume an investor preference is characterized by the utility function U = E[r]-0.5A()^2. What is the optimal portfolio for an investor with A=4? (Hint: calculate the investors utility for different portfolio combinations. Begin with 100% in risk free, 0% in S&P and go up to -50% in risk free and 150% in S&P with 10% increments. Excel would be helpful here.)

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