Q15. An investor is faced with choosing to invest $5 million…
Q15. An investor is faced with choosing to invest $5 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 = 3 and the risk-free rate is 4%. What percentage of the investor’s $5 million wealth will be invested in the risk-free asset? Portfolio A B C E(R) 5.0% 12.0% 13.0% Std. Dev 8.0% 25.0% 25.5% Hint: w ∗ = ( E ( R ) − R f ) / ( λ σ 2 ) {“version”:”1.1″,”math”:”w^* = (E(R) – R_f)/(\lambda\sigma^2) “}where w* is the weight of the risky asset.