Q15. An investor is faced with choosing to invest $1 million…
Q15. An investor is faced with choosing to invest $1 million between a portfolio of risky assets and a risk-free asset. The investor can choose only one of the three risky portfolios in the table below. The investor has a risk aversion coefficient of lambda = 2 and the risk-free rate is 3.5%. How much of the $1 million budget will be invested in the risky asset? Portfolio A B C E(R) 4% 10% 15% Std. Dev 8% 29% 33% Utility 0.0336 0.0159 0.0411 Hint: w ∗ = E ( R P ) − R f λ σ 2 {“version”:”1.1″,”math”:”w^* =\frac{E(R_P) – R_f}{\lambda\sigma^2}”}