Consider historical data showing that the average annual rate of return on the S&P 500 portfolio...

70.2K

Verified Solution

Question

Finance

Consider historical data showing that the average annual rate ofreturn on the S&P 500 portfolio over the past 85 years hasaveraged roughly 8% more than the Treasury bill return and that theS&P 500 standard deviation has been about 37% per year. Assumethese values are representative of investors' expectations forfuture performance and that the current T-bill rate is 5%.
Calculate the utility levels of each portfolio for an investorwith A = 2. Assume the utility function is U =E(r) ? 0.5 × A?². (Donot round intermediate calculations. Round your answers to 4decimal places.)
WBills
WIndex
U(A = 2)
0.0
1.0
0.2
0.8
0.4
0.6
0.6
0.4
0.8
0.2
1.0
0.

Answer & Explanation Solved by verified expert

4.2 Ratings (725 Votes)

SEE THE See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Consider historical data showing that the average annual rate ofreturn on the S&P 500 portfolio over the past 85 years hasaveraged roughly 8% more than the Treasury bill return and that theS&P 500 standard deviation has been about 37% per year. Assumethese values are representative of investors' expectations forfuture performance and that the current T-bill rate is 5%.Calculate the utility levels of each portfolio for an investorwith A = 2. Assume the utility function is U =E(r) ? 0.5 × A?2. (Donot round intermediate calculations. Round your answers to 4decimal places.)WBillsWIndexU(A = 2)0.01.00.20.80.40.60.60.40.80.21.00.