Problem 6-12 Consider historical data showing that the average annual rate...
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Accounting
Problem 6-12
| Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 21% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 4%. |
| Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility function is U = E(r) 0.5 A2. (Do not round intermediate calculations. Round your answers to 4 decimal places.) |
| WBills | WIndex | U(A = 3) | |
| 0.2 | 0.8 |
| |
| 0.4 | 0.6 |
| |
| 0.0 | 1.0 |
| |
| 0.8 | 0.2 |
| |
| 1.0 | 0.0 |
| |
| 0.6 | 0.4 |
| |
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