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Refer the table below on the average excess return of the U.S. equity market and...

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Accounting

Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return. Suppose that the U.S. market is your risky portfolio. Average Annual Returns U.S. Equity Market Period U.S. equity 1-Month T-Bills Excess return Standard Deviation Sharpe Ratio 19272021 12.17 3.30 8.87 20.25 0.44 19271950 10.26 0.93 9.33 26.57 0.35 19511974 10.21 3.59 6.62 20.32 0.33 19751998 17.97 6.98 10.99 14.40 0.76 19992021 10.16 1.66 8.50 18.85 0.45 Required: If your risk-aversion coefficient is A = 4.6 and you believe that the entire 19272021 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 A2squared. What if you believe that the 19751998 period is representative

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